Buoyed up by a strong economy, new listings, initial public offerings (IPOs) and recent developments within the capital market, the Saudi stock market is growing as never before. So far this year, the Tadawul All-Share Index (TASI) has gained over 40 percent. This follows on six years of growth at an average annual rate of 38 percent. Market volumes have also increased significantly. On average, they are now worth over $4 billion a day, according to the daily English newspaper Arab News.
Market capitalization at the end of April was worth over $435 billion making it by far the largest market in the Middle East. It represents 47 percent of the total capitalization of Arab stock markets and 53 percent of Gulf Cooperation Council (GCC) stocks markets. According to the World Federation of Stock Exchanges, the Saudi equity market ranks 16th out of the 50 largest equity markets in the world in terms of capitalization and 12th in terms of the value traded.
The growth in the equity market has been very much boosted by the government's ongoing privatization program as well as by a sharp increase in the number of companies looking to the market for capital. Recent IPOs have been oversubscribed by as much as 12 fold. The largest offering attracted more than 8.7 million subscribers, which is more than half the number of Saudi citizens.
Growth has not been limited to the equity market. Saudi banks now offer over 200 mutual funds. The numbers of unit-holders in these funds and assets under management have grown over the last ten years at rates of 20 and 14 percent a year respectively.
In July 2004, the Capital Market Authority (CMA) was set up as part of the general financial reforms aimed at ensuring sound and solid growth in the capital market.
The CMA's functions are to regulate and develop the Saudi Arabian capital market. It issues the rules and regulations for the implementation of the provisions of the Capital Market Law.
Following the formation of the board of the Capital Market Authority, the CMA set up regulations on the issuance of securities and, more recently, announced rules governing securities business activities and the licensing of non-bank financial intermediaries.
The regulation of intermediaries is "a priority" for the CMA, according to Jammaz Al-Suhaimi, its chairman and CEO.
"In order to safeguard and protect the interest of investors, the CMA must ensure that only intermediaries that meet the licensing criteria operate within the market and that only fit and proper persons are employed by these intermediaries," Al-Suhaimi said.
When considering licensing, the authority places particular emphasis on the intermediary's ability to comply with CMA regulations, he explained, including safeguards to prevent money laundering, so that it can adequately assess and manage risk. It must also have the necessary capital to conduct operations in Saudi Arabia, he added.
"The CMA has received applications for licenses from domestic and foreign firms," Al-Suhaimi said. "The entry into the market of multinational financial services firms is important. They bring significant experience and add value by offering a wide range of product and services and transfer knowledge and technology."
"We are developing strong ties with the international regulatory bodies that have primary regulatory responsibility for financial intermediaries in their domestic markets. By forming these close ties of cooperation we aim to ensure that there are no regulatory gaps," Al-Suhaimi added.
Financial analysts attribute the phenomenal growth of the market to several factors. Oil prices, abundant liquidity and strong economy are some of the main factors behind the Saudi stock exchange's strong drive. But there is one particularly important factor that stands out over the last six months - the confidence gained in the Saudi stock market.
Part of that confidence comes from the way the Saudi stock market (the "Tadawul") operates a continuous, order-driven market, with up-to-the-minute price, volume and company information dissemination. It concentrates all equity trading into a single market.
The Tadawul was one of the first markets in the world to set up a full electronic clearing and settlement system. It transfers ownership immediately following the matching of buy and sell orders. All deals settle on the day of execution. Buy and sell orders are electronically processed from order entry to transfer of ownership.
