Saudi Arabia's Tadawul stock exchange will launch single stock futures contracts (SSFs), the second in a series of derivatives products it has introduced, starting on July 4, as it seeks to boost market liquidity.
The new contracts will enable local and international investors to hedge and manage portfolio risks more effectively, while the bourse diversifies products available for trading in the market, Tadawul said in a statement on Sunday.
The bourse, which launched the derivatives market in 2020, said 10 underlying stocks were selected for SSFs contracts based on criteria to ensure market interest and liquidity.
These are Al Rajhi Bank, Saudi Aramco, Saudi National Bank, Alinma Bank, Sabic, STC, Saudi Kayan, Saudi Electricity, Almarai and Maaden.
“The underlying stocks have been selected from the largest and most liquid companies listed on the Saudi Exchange,” it said. “SSFs contracts will be cleared and settled by Securities Clearing Centre Company Muqassa in line with international best practices.”
The kingdom has introduced a series of measures to attract international share buyers and issuers as part of efforts to draw foreign investment, diversify the economy and reduce its reliance on oil.
Tadawul, which is among the top 10 global stock markets, became the third publicly traded regional stock exchange after the Dubai Financial Market and Boursa Kuwait when it listed on December 8, 2021.
“The launch of the SSFs contracts further supports the advancement of the Saudi Capital Market by creating diversified offerings, complemented by hedging tools to manage risk and limit losses in adverse market conditions,” Mohammed Al Rumaih, chief executive of Saudi Exchange, said.
- SSFs contracts are standard futures contracts with an individual stock as its underlying asset. SSFs are traded on the stock exchange, similar to other cash market products.
- SSFs contracts represent an agreement made between a buyer and a seller who are obliged to complete a transaction at a date in the future. Its value is derived from the value of a stock (underlying asset).
- SSFs can be traded on the Saudi bourse by opening an account with a registered derivatives exchange broker and depositing required collateral.
- SSFs allow investors to hedge their equity portfolio and traders to gain exposure to the price movement of the underlying stock. SSFs also enable short selling without actually owning the underlying stock and they typically move in tandem with the underlying stock.
- SSFs holders do not have voting rights in a company's general assembly and they do not receive a company dividend.