RIYADH: Local and global investors will soon be able to hedge and manage portfolio risks effectively as the Saudi Exchange announces the introduction of single stock options contracts.
SSOs contracts are standard option agreements with an individual stock as its underlying asset. Moreover, they represent the third derivative product to be introduced to the Kingdom’s exchange, which will be available for trading on Nov.27, according to a statement.
“The launch of SSOs, the third derivatives product, reinforces the Saudi Exchange’s efforts to providing investors with diversified investment opportunities and tools to manage risk effectively while increasing market liquidity,” Mohammed Al-Rumaih, the exchange’s CEO, said.
“The Saudi Exchange continues to explore the introduction of new products and services to the Saudi capital market in line with efforts to align it with international best standards,” Al-Rumaih added.
Following international best practices, the contracts will be cleared and settled by the Securities Clearing Center Co.
Four underlying assets have been selected from the largest and most liquid firms listed on the exchange, namely Aramco, Al-Rajhi Bank, Saudi Telecom Co., and SABIC.
The exchange has plans to expand its pool of SSOs contracts to include more companies.
It is also projected to physically introduce settled American options, which are a type of financial contract that requires the actual delivery of the underlying asset that can be exercised at any time before expiration.
In 2020, the Saudi Stock Exchange, also known as Tadawul, launched the Kingdom’s first exchange-traded derivatives market and clearing house as part of its strategy to make its equity markets more attractive to foreign investors.
Using Nasdaq technology, the Saudi Futures 30 Index Futures Contract is based on the MSCI Tadawul 30, the first exchange-traded derivatives product, according to a statement released at the time.
“This is a significant step in introducing sophisticated market products and creating a trading environment that is attractive to local as well as international investors,” Tadawul CEO Khalid Al-Hussan said at the time.
In 2019, the Saudi market joined the FTSE Emerging All Cap Index and the MSCI Emerging Markets Index, initiating more foreign fund inflows.
