Tadawul had its origins as an informal market and gradually developed into a matured securities exchange. It has developed together with the expanding needs of the Saudi economy and the region. Today it stands as a leader among emerging market exchanges.
Tadawul is the only authorized body for the listing and trading of securities in the Kingdom of Saudi Arabia. A smoothly functioning and well regulated stock market is essential for the development of a modern market economy. The Exchange’s Vision, Mission and objectives are closely aligned with the goals of the Kingdom’s Vision 2030. Some of the shared goals include increasing the private sector’s contribution to the economy, drawing in more foreign investment, and growing the SME sector.
Tadawul has networked with many related international organizations and is an affiliate member of the International Organization of Securities Commissions (IOSCO). It is also a member of the World Federation of Exchanges (WFE), the Arab Federation of Exchanges (AFE), the Africa and Middle East Depositories Association (AMEDA) and the United Nations Sustainable Stock Exchanges (SSE).
Tadawul provides a platform through which trading in securities listed on the market is enabled, and which contributes to the access of listed companies to financing and allows traders to invest in the market. With the development of technology the entire process of listing and trading securities is conducted online. Two core functions of the Exchange are the Depository and the Registry. The Depository maintains the record of the ownership of shares linked to each investor. The Registry maintains complete details of the ownership of securities by individual corporates. Both have to be updated when transfer of ownership takes place. Only Capital Market Institutions may carry out business on the Exchange. Currently Tadawul has 31 trading Capital Market Institutions.
When transactions in securities take place a process known as clearing is executed, to work out the obligations of each party and complete the change in ownership when the sale takes place. The availability of securities and cash has to be confirmed and on settlement the transfer of securities takes place and relevant records are updated.
The Securities Depository Center Company, Edaa was established in 2016. Its main function is to maintain the Depository and Settlement System, which keeps a record of securities and tracks their ownership. The other subsidiary, the Securities Clearing Center Company, Muqassa, was formed in 2018. Muqassa, which became operational in 2020, contributes to ensuring a safe and transparent capital market infrastructure. It is one of the key initiatives under the Financial Sector Development Program (FSDP). Muqassa develops clearing services, reduces counterparty risk, and increases market efficiency.
A third and a new subsidiary company named Wamid, was formed which was an innovative step. Its focus is to be a technology oriented business which will drive innovation and nascent technologies within the Saudi economy. It will add depth and diversity to the Saudi Tadawul Group and increase the Saudi market’s attractiveness to the global investor community.
The Parallel Market Nomu, established in 2017, is intended for SMEs. It has lighter listing requirements and provides an alternative route for smaller companies to go public. Investment in Nomu is restricted to qualified investors. A major step that was taken in 2020, was to permit companies to list on Nomu directly without making an initial offering. Tadawul became the first exchange in the GCC to do so. The main market includes a total of 21 industry sectors while Nomu includes 7 sectors.
Debt instruments are another increasingly important area of the market. Debt securities traded on the market include Government and corporate Sukuks/bonds. A major development in 2020 was to permit foreigners to invest directly in debt securities.