27 March 2017
Michael Sheen

Saudi stockmarket opens up to short-selling

Saudi Arabia’s bourse, the Tadawul, will allow managers to take short positions for the first time from 23 April.

The move follows a May 2016 announcement from Saudi regulator, the Capital Market Authority, setting out plans to implement new regulations, including allowing securities lending and covered short selling.

“This is part of a broader move to develop the local market and get into the MSCI EM index,” said Roger Allen, managing partner at MENA Capital.

Short-selling is banned across the Gulf States, but managers have been able to circumvent this in some markets by using offshore swaps. However, this was impossible in Saudi as “no bank was willing to facilitate shorting of Saudi stock given their physical presence in the Kingdom,” said Allen. “This will significantly expand our shorting universe, as previously,” he added.

The short-selling announcement on Friday coincided with new requirements allowing managers to complete the transaction of securities listed on Saudi capital markets within two days. Current Saudi rules require managers to complete these transactions on the same day as a trade.

“Buyers can sell securities directly upon executing transactions with no need to wait for completing the settlement of securities,” Tadawul said in a statement. “Also, sellers gain purchasing power that enables them to buy new securities directly upon executing transactions with no need to wait for completing the settlement of securities.”

Tadawul added that the change would allow for an increased levels of asset safety for investors, a more active role for market makers in the stock market and develop an investment environment that promotes institutional-level investments. So-called T+2 also moves the Saudi stock market in line with global settlement practices, which Tadawul said opens up new listing opportunities for the Saudi market among other global market indexes.

Nick Wilson, Chairman of the London-listed Qatar Investment Fund plc, which invests across the GCC: “Saudi Arabia’s capital markets regulators are in the midst of capital market reforms to attract more international investors,” said Qatar Investment Fund chairman Nick Wilson. “[The] introduction of T+2 settlement and short selling may help the market join international equity indexes, which in turn should help attract billions of dollars of fresh investment. “Some of the new measures only apply to very big investors, but the direction of travel is positive.”

Michael Sheen

Tuesday 28th March, 2017 7:03 AM ET