Saudi revamps derivatives to attract foreign cash

Saudi Arabia's stock exchange, Tadawul, has introduced changes to its derivatives trading rules in an effort to entice foreign investors and boost liquidity. The moves come as the bourse attempts to revive trading activity following the Iran war. The Saudi Exchange has reduced trading fees and enlisted market makers to ensure investors can always find a counterparty.

These structural alterations, disclosed to Semafor, have already spurred derivatives trading to around $60 million since August 19, up from negligible levels. The Saudi bourse launched its first derivatives in 2020, but trading activity remained stagnant. Tadawul aims to leverage derivatives trading as a fresh revenue stream, diversifying its income as trading fees from stocks have plummeted.

Saudi Arabia has been exploring various strategies to stimulate trading volumes and rejuvenate new stock listings that were languishing even before the Iran war intensified investor apprehension. The market regulator recently lifted constraints on foreign investors purchasing local stocks and is reviewing limits on the portion of firms they can own.

The regulator is also examining the underwhelming performance of recent initial public offerings and questioning the counsel provided by investment banks to the firms issuing stock, according to sources familiar with the situation.