The Saudi Stock Exchange (Tadawal) has announced it will establish a new central counterparty (CCP) for securities clearing, a significant step forward for enticing foreign investors.
Tadawal said the launch of the independent clearing house will help diversify investment opportunities with the creation of new asset classes, such as derivatives, and “will enhance the attractiveness of the Saudi capital market to all investors.”
The Capital Market Authority (CMA), Saudi Arabian Monetary Authority (SAMA) and Tadawal have already put in place a regulatory regime for the CCP to function and aims to have the clearing house up and running by the second half of 2019.
“Establishment of the CCP will facilitate the further growth and product expansion of the capital market by enhancing the post-trade infrastructure to reduce risk, enhance financial stability, and attract investment into the Saudi capital market in alignment with international standards and Vision 2030,” said Eng Khalid Al Hussan, CEO of Tadawul and chairman of the board of directors of the CCP.
The establishment of the CCP will also guarantee settlement of trades and provide netting capabilities, something that will greatly ease foreign investor concerns.
Saudi Arabia opened its doors to foreign investors three years ago, and with the expected listing of oil giant Amarco next year, has been touted as the next up and coming market.
It has since adopted a number of market reforms to further encourage foreign investment, including the introducing of short selling and securities lending, migrating from T+0 to T+2 trade settlement, and eased restrictions around foreign ownership of listed securities.
Global index provider MSCI is also expected to upgrade the country’s status from frontier to emerging market status.