Saudi bourse CEO in full pursuit of EM prize

Saudi Arabia’s stock exchange is making a determined bid to win emerging market (EM) status in 2017, a designation likely to trigger billions of dollars in investor inflows.
The Tadawul, as the biggest bourse in the Middle East is known, is working with international index compilers to effect the changes they need, chief executive officer Khalid al-Hussan said in an interview in Riyadh last week. Joining neighbours UAE and Qatar in the emerging-market stable could unleash $11bn of investment in the Saudi market, according to calculations by the research division of EFG-Hermes, the biggest publicly traded Arab investment bank.
The exchange said last week it will move to a T+2 settlement cycle in the second quarter, one day after it introduced a new industry classification system for stocks. Below are extracts from al-Hussan’s conversation with Bloomberg:

Prospects for emerging market status
“Before we started these changes, we spoke, and we are still in a dialogue, with all major index providers, including MSCI, FTSE and the S&P, as well as international foreign institutional investors about how we make the infrastructure of the Saudi market an attractive one. We took all of the feedback and we looked at our market.
“If these changes get successfully implemented, the momentum around the Saudi market will kick off. All of these factors will play a role in getting some positive decisions hopefully in 2017. So with MSCI, the inclusion on the watch list is the next step. With FTSE and S&P, the decision of inclusion is the next step. So these are all potential things to happen in 2017.”

Best processes
“We have looked as well at practices by other exchanges, regional and international, to make sure that we don’t introduce practices or procedures unfamiliar to investors. Our belief, today, through what we announced on the rules as well as the business operating model that compliments the rules, is that we have arrived at a stage where we say both local and international, both individual and institutional investors are accommodated.
“We understand all the risk factors and we’re putting in place all procedures and processes to control these risks. Any settlement cycles in the world are associated with risk. Whether T+0, T+1, two or five. We understand in detail the risks and we are putting the proper procedures in place to control them.”

Attracting sophisticated investors
“All of the changes that are required by MSCI and its clients are considered in the package of changes that we are introducing in the second quarter, including the T+2, the fails management, the enhancements on custody controls. And we’re introducing additional things on top of that that are not required - like short selling, securities lending and borrowing.
“We see these changes as being important tools for the sophisticated investor. And we want to also make sure that the Saudi market is the leading regional exchange as far as market features and infrastructure are concerned.”