The Saudi Stock Exchange (Tadawul) on 27 February announced a series of reforms aimed at increasing the number of company listings on its secondary market for small- to medium-sized enterprises (SMEs).

The changes, which allow listings without an initial public offering (IPO), reduce reporting requirements, and lower the threshold for trades, are aimed at making it easier for small companies to list on the Tadawul’s Nomu parallel market and enhance liquidity in the market.

The changes come two years after the Tadawul launched the Nomu market as part of a strategic initiative with Saudi Arabia’s Capital Markets Authority (CMA) to support SMEs in Saudi Arabia.

The changes will be implemented in two phases, with the first phase being implemented in the first three months of 2019, and the second phase in the second quarter of the year.

Changes in the first phase include:

  • Provisions to allow direct listings on the Nomu market without an IPO
  • Requirements for issuers to report financial earnings on a semi-annual basis instead of quarterly based reporting
  • Streamlining the process for issuers to transition from the parallel market to the main market
  • Establishing access mechanisms by applying minimum liquidity threshold
  • Reducing normal trade threshold
  • Introducing the Nomu Capped Index

Phase two reforms include:

  • Listing close ended funds and real estate investment trusts (REITs) on Nomu
  • Introducing volatility guards
  • Introducing independent research

The changes are the Tadawul’s latest steps in its plans to broaden and deepen Saudi Arabia’s capital markets, and are aligned with the objectives of the Financial Sector Development Programme set out in the kingdom’s Vision 2030 reform programme.

Vision 2030 stresses the importance of developing a more advanced capital market with more diverse investment opportunities and instruments for international investors.

“These initiatives are part of our ongoing strategic plans to further develop Nomu-the Parallel Market,” said Tadawul CEO Khalid al-Hussan.

“We are constantly working on making Nomu a more flexible attractive platform for both investors and potential companies. Throughout the past two years, we have been carefully analysing the market and taking into consideration the needs of market participants.”

Al-Hussan added: “The changes also come hand in hand with the Saudi market upcoming inclusion in FTSE Russell and S&P international indices as an emerging market in March 2019, followed by the inclusion in MSCI Emerging Market Index in May 2019, which will enhance the Saudi market’s position among international markets.”

The Tadawul is Saudi Arabia’s only authorised securities exchange. With a market capitalisation of about $496 billion, it is the dominant market in the GCC, and represents about 49 per cent of total GCC market capitalisation and 80 per cent of value traded.