AN ACCELERATING POSITIVITY

A landmark development was the introduction of the SF30 Futures Index, which is built on the MSCI MT30 Index. It serves as a trading and hedging tool which would enable investors to protect their portfolio value.

The backdrop

I am reporting on a year when the entire world was plunged into recession and suffered a serious social crisis due to the COVID-19 pandemic. Many countries imposed lockdowns or curfews. Some industries such as travel, tourism, and entertainment practically came to a standstill. The global economy is estimated to have contract by 3.5%, and the Middle Eastern and Central Asian region by 3.2%. Governments came under enormous fiscal pressure owing to the need to provide relief measures. Medical services came under tremendous strain. The Saudi economy, in common with the rest of the GCC, suffered a two-fold blow due to the additional impact of lower oil prices and output. The contraction in Saudi GDP is around 4%.

The vanguard operations

Against this disheartening backdrop I am proud to report that Tadawul recorded an extremely commendable performance during the year. The market showed impressive record in trading activity; daily average value traded, total number of transactions, and number of shares traded all grew by over 100%. The TASI index and market capitalization recorded modest growth. Satisfactory liquidity levels were also maintained. The fifth and final tranche of inclusion in FTSE Russell Emerging Markets Index was completed. This was the culmination of a process of inclusion in three leading emerging market Indices that began in 2018.

A landmark development was the introduction of the SF30 Futures Index, which is built on the MSCI MT30 Index. It serves as a trading and hedging tool which would enable investors to protect their portfolio value. This will be particularly beneficial to institutional investors who prefer to avoid volatility in the market. The minimum price for negotiated deals was amended putting in place a more flexible system taking liquidity into account. The debt market also saw a major development with the launching of two related indices. These indices provide an indication of the performance of Saudi Sukuks and bonds and are of great value to portfolio managers to assess portfolio value and risk.

Major changes were also implemented in the Parallel Market, Nomu. The minimum value for negotiated deals was significantly reduced. The ceiling on brokerage commission was eliminated to give members more leeway in giving value added services to clients. The Nomu capped index was reviewed to give a limit on the weighting of each issuer.

The financial picture

I am pleased to report that, while adverse circumstances prevailed, Tadawul nevertheless delivered a strong financial performance. Operating revenues registered a 91.3% increase over 2019, driven by higher trading volumes. With the onset of the crisis, a policy of cost control and cost optimization was introduced which bore fruit. The increase in operating cost over that of the previous year was only 9.3% which reflects increased efficiency. This, together with the increase in operating revenue, resulted in a 203% increase in gross profit. The general and administrative expenses declined by 8%, which when compounded with the increase in operating revenue caused the operating profit to increase more than 10-fold. Investment income suffered a sharp decline due to the reduction in interest rates. However, with the other positive factors, we were able to achieve a 227% increase in net income after Zakat.

The human resources function faced major hurdles during the year. Employees’ working methods had to be re-engineered to facilitate remote working.

The role of technology

The IT and Operations Division also had a slew of achievements during the year. The Division had to handle unforeseen demands due to the new remote working requirements resulting from the pandemic. Despite this, all planned milestones were achieved on schedule. Parallel runs of several major projects including Derivatives Market Launch, Tadawul New Data Center, and Post-Trade Technology Programme were accomplished. Major enhancements were also made in market information and data analytics which greatly contributed to the efficiency of the Exchange. The Sukuk Index was introduced and appropriate changes were made to the Tadawul website and mobile app to display additional information. With all the additional demands routine market functions were kept running smoothly and complete system availability was achieved.

The people factor

Our human resources strategy is built on three pillars; Direction, Motivation, and Leadership. We emphasize on clear communication of direction and vision. This builds empathy among employees and helps them set their own goals. The Exchange has put in place a transparent system of performance management and assessment. Thereby we aim to change the leadership style from a top-down one to being more participative.

The human resources function faced major hurdles during the year. Employees’ working methods had to be re-engineered to facilitate remote working. As physical meetings were not possible internal and external meetings had to be conducted through a video conferencing medium. We also facilitated engagement amongst employees and between management and employees through virtual media. An innovative step in this direction was the conducting of two town hall meetings with all staff, the executive team and the CEO. A survey was also conducted to assess the acceptance by the staff of the new working arrangements. The result showed that an overwhelming majority approved of the changes.

In conclusion

With the achievements of a turbulent year behind us, we look to the future with confidence. The Exchange has proved its resilience and been through a learning experience. There are great opportunities ahead for the market. Human resources, IT, operations, and governance are well placed to play their supporting, albeit indispensable, roles.

Finally I wish to thank the Chairperson and the Board of Directors for their unwavering guidance and support. I must also acknowledge the commitment and dedication of our employees which enabled us to surmount the vicissitudes of a turbulent year.

Eng. Khalid Abdullah Al-Hussan
Chief Executive Officer