ONWARDS AND UPWARDS

The year 2020 was a daunting one for the global economy as well as the Kingdom. Apart from the COVID-19 pandemic, the Saudi economy had to face the reduced oil prices and cutbacks in production. In the face of adversity, Tadawul ended the year with a laudable performance, in terms of both market performance and financial performance.

Meeting challenges

The year 2020 was an extremely challenging one, not only for the Exchange and the Kingdom but also globally. The COVID-19 pandemic plunged the world into the most serious economic and social crisis since the World War II. The Saudi economy was afflicted not only by the pandemic, but also by the dampened oil prices and cutbacks in production. Despite the odds, we ended the year on a favourable note, both in terms of market performance and financial performance. The pandemic caused a considerable curtailing of commercial activity and movement. However, Tadawul took all possible steps to maintain business continuity.

Trading hours were curtailed; but it was implemented without adverse impact on trading volumes and liquidity levels. The average daily traded value reached nearly two and a half times that of 2019. Tadawul retained its position among the ten largest exchanges globally and also emerged as one of the three leading emerging market exchanges. Another salutary development is that the concentration of value traded in the three largest industry groups reduced significantly, reflecting a diversification of investor preferences.

Despite headwinds, the Exchange continued on the path to becoming a more advanced capital market. Following the inclusion in MSCI and SP Emerging Market Indices in 2019, inclusion in FTSE Emerging Market Index was completed in 2020. Another landmark step was the launching of the derivative market. One derivative was launched during the year, which is the Saudi Futures 30 which is based on the MT30 Index launched in 2019. This was just a beginning; further developments are on the horizon. The introduction of the futures derivative will have the effect of constraining market volatility. Another enhancement was the modification of daily fluctuation limits for the Main Market and Nomu. This modification gives more assurance of fair pricing and investor protection. These developments enhanced our image in the eyes of the local and international investor community.

Another major development was that the Securities Clearing Center Company, Muqassa became operational. Muqassa acts as an intermediary in trading reducing counterparty risk. It also carries out netting of transactions on a multilateral basis, which will reduce the number of transactions, both cash and security. This fulfils one of the key objectives of the Financial Sector Development Program. Muqassa also facilitated the introduction of derivatives by implementing index futures clearing.

The Security Depository Center Company, Edaa also introduced some noteworthy innovations during the year. An institutional framework was established, through an MOU with Clearstream to facilitate access to the debt market to foreign investors. Edaa has also enabled foreign investors to hold Saudi securities and trade them on their own stock markets without being registered on Tadawul, through Depository receipts.

The nurturing of human resources is a key thrust of Tadawul’s strategy. In 2020, despite the headwinds most of the HR-related strategic objectives were achieved. New working methods and locations had to be swiftly introduced when the conditions precluded working in normal locations. Technology was successfully leveraged to make the change and our staff rose to the occasion.

Completion of inclusion in FTSE Russell Emerging Markets Index and launching of the derivatives market were major milestones during the year.

Supporting services

Our technology function is clearly aligned to the organization strategy, its pillars and initiatives. During the year, despite the challenges we faced due to COVID-19 pandemic all planned initiatives were delivered and milestones achieved. This was in addition to coping with unexpected requirements such as providing new hardware and software for remote working. Major enhancements were also put in place to provide more sophisticated and timely market information and data analytics. A major milestone was the completion of the new Data Center.

Promoting sustainability

Tadawul eschews taking a narrow market-focused or financial-focused approach. We are conscious of the importance of ESG factors which are being increasingly recognized as major concerns globally and across business sectors. We took a major step in this journey when we joined the Sustainable Stock Exchanges in 2018. This has opened up opportunities for networking and sharing experiences. Tadawul‘s ESG programmes are formulated within the framework of the United Nations Sustainability Development Goals (UNSDGs). Six of the SDGs have been identified as focus areas. In addition four themes, economy, education, community, and environment have been accepted to formulate specific programmes. During 2020, despite the constraints imposed by the pandemic situation several programmes have been implemented in the theme areas.

Looking ahead

The fact that we weathered the storms and ended the year with a laudable performance speaks volumes for our strengths, resilience, and innovativeness. The achievements of the last few years give us an excellent foundation on which to build further. The Exchange has much to look forward to by way of introduction of new products and services and strengthening our regional as well as global links. There is much potential in expanding the derivatives market; single stock futures, options, and introduction of market makers are in the offing. We also propose to introduce new indices, one of which is the Sharia Index which is a measure of Sharia-compliant listed companies. The Corporate Governance Index, which is also in view, will give additional weightage to companies which adhere to the CMA Corporate Governance Rules. Further, development of fixed income securities is another area which holds much promise. With the experience of the pandemic we can expect more and more focus on ESG issues in the future. The existing framework and the steps we have taken so far provide a base for further development. We intend to conduct programmes, such as workshops, to spread awareness of ESG issues among market participants.

Giving recognition

I have to thank the CEO and the Board of Directors for their dedication and firm hand of direction in turbulent times. The Senior Management too deserves kudos for keeping business continuity and implementing changes despite the challenges. I do not forget the flexibility and commitment our employees have shown in adjusting to new working methods and conditions. I also have to acknowledge the regulatory role which was prudently executed by the Capital Market Authority. I also have to thank all our other stakeholders; issuers, investors, brokers, custodians, and service providers for helping to maintain business continuity through their trust and confidence in the market.

Sarah Al-Suhaimi
Chairperson