|04 December, 2019

Saudi Tadawul updates indices methodology; sets new rule for 'Fast Entry'

The measures include a 15 percent threshold to reduce the dominance of larger companies

An investor monitors a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia January 18, 2016. Image used for illustrative purpose

An investor monitors a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia January 18, 2016. Image used for illustrative purpose

REUTERS/Faisal Al Nasser

Saudi Arabia’s stock exchange, Tadawul, has updated its index methodology to develop and manage its equity indices in a more balanced way.

The measures include a 15 percent threshold to reduce the dominance of larger companies on the index performance so that weights of all index constituents remain under a set capping threshold, Tadawul announced in a statement.

“The update to Tadawul’s indices methodology reflects our continuous efforts to further develop the Saudi capital market and ensure more balanced indices, which will accurately represent the movement of the market, enhance disclosures and transparency and minimize securities’ dominance within Tadawul Indices,” Khalid Al Hussan, CEO of Tadawul, said.

“Through our available information on indices, our market participants can easily obtain an accurate perspective on the performance of the Main Market and Nomu. Today, Tadawul has 203 listed securities, with an average capitalization of SAR 10 billion ($2.6 billion) and an overall market capitalization of over SAR 1.9 trillion ($506 billion). A market with such large size requires balanced indices”, Al Hussan added.

Any constituent whose index weight reaches or exceeds the threshold will be capped in accordance with the set limit, the statement said.

The exchange is also applying a new rule for “Fast Entry”, in which shares of significantly large IPOs are included in the Tadawul All Share Index at the close of their fifth trading day.

Saudi Aramco is expected to price its IPO on December 5 and the company’s stock is expected to trade on the Saudi Exchange, Tadawul, several days later.

Other updates include a change in the way Tadawul calculates free floating shares. According to UAE-based the National, shares held by a government entity that owns 5 per cent or more of an entity, shares repurchased by companies via buybacks, restricted shares that can't be traded within certain periods and shares owned by controlling entities (which have a stake of 30 per cent or more) or board directors will all be excluded from calculations of the amount of 'free float' shares.

The exchange added that the new updates will be effective at the end of 2019, as part of its quarterly indices maintenance, but the “Fast Entry” rule will be effective immediately.

(Reporting by Gerard Aoun; editing by Seban Scaria)

(gerard.aoun@refinitiv.com)

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