(1888PressRelease)
August 23, 2008 - London - Saudi investors who are licensed intermediaries, can enter into swap agreements with non-resident institutional and individual investors. Saudi investors retain legal ownership of the shares while transferring economic benefits to foreign investors.
Until now, Tadawul, the Middle-east’s largest bourse, has been largely closed to foreign capital, giving foreigner access to stocks only through select funds - mostly complex and indirect mutual funds. Currently, non-resident investors are not allowed to buy shares listed on the Tadawul. The exchange initiated a process asking investors with stakes of 5% and above to increase transparency, which led to a rally of eight straight sessions. The market is down about 25% since the beginning of the year, according to Zawya.com data.
The current move is part of CMA’s attempt to diversity the market’s investor base and “develop the financial market.” With the easing of regulation, the Tadawul could see an increase in business. Details on how and when this regulation will come into force are yet to be disclosed.
We at Aranca believe that this particular initiative by the authorities could pump-in much needed liquidity and reduce the speculation in the long term. This, coupled with Tadawul’s other initiative in the past (such as resorting to free float method of index calculation in line with global standards) sends clear signal to the investor community that authorities are committed to improve the market efficiency and ensure transparency in the years to come.
Big market players are already lining up to provide swap options to international investors. Immediately after CMA’s announcement, HSBC Holdings PLC's (HBC) Saudi Arabian unit said that it plans to offer foreigners the access to stock derivatives via swaps.
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