Tadawul implements mechanism changes for negotiated deals, fluctuation limit starting today

The enhancements on negotiated deals and fluctuation limits mechanism for newly listed securities on the main market and all listed securities on Nomu-Parallel market will come into effect from today, Nov. 8, 2020.

The enhancements are part of Tadawul’s commitment to improve the capital market infrastructure and further align with global best practices.

The updates in price fluctuation limits in the main market to include newly listed securities will be applied only within the first three days of the listing, while it will be applied to all listed securities on an ongoing basis in Nomu-Parallel Market.

The updates made to the minimum size requirements for negotiated deals will provide an efficient, transparent and dynamic mechanism for market participants.

In addition, Tadawul aims to enhance price formation and improve market efficiency by expanding the daily price fluctuation limits and introducing static price fluctuation limits and volatility auctions in the main market and Nomu-Parallel market.

The daily price fluctuation limit was expanded from +/-10% to +/-30%. The static price fluctuation limit was also placed at 10%, and the volatility auction was allowed when the stock is traded during the session.

The volatility auction is activated for a period of five minutes when the price of the security reaches 10%, whether up or down. It is an auction that begins when the price of the security reaches the constant limit of volatility that can be repeated several times during the trading session, resulting in a new reference price that fixed price limits is built on.

The new changes apply to newly-listed equities, REITs and close-ended investment traded funds on the main market in the first three days of trading, after which daily price volatility limits will be reset to -/+ 10%, and fixed price volatility limits will be eliminated.

As for Nomu-Parallel market, the following changes will be applied:

- Daily price fluctuation limits will be expanded to +/- 30% instead of +/- 20%.

- Fixed price fluctuation limits will be applied when the price of a security reaches +/-10%, leading to the activation of the price volatility auction, to determine a new fixed limit for the securities based on the new reference price resulting from the auction.

- The volatility auction is activated for five minutes when the price of the security reaches +/-10%, an auction that begins when the price of the security reaches the fixed limit of price fluctuation and can be repeated several times during the trading session, and results in a new reference price on which fixed price limits are built.

These changes will continuously apply to all securities listed in Nomu-Parallel Market.

Tadawul will also extend the opening and closing auctions when the security price reaches +/-10 of the default price, or when the opening price and/or default close have not yet been configured.

Meanwhile, changes to the minimum value of negotiated deals will be based on the characteristics of each listed security. The new procedures stipulate that both stocks and ETFs listed in the main market will be classified into four specific categories, which in turn, will have their own minimum in terms of value.

The four categories will be determined as follows:

The list of stocks and ETFs for each category will be updated at the end of Q2 and Q4 of the calendar year, reflecting changes in market activity. The rating of shares and ETFs will be based upon the launch of these updates on the average daily trading value for the first six months of 2020 (Jan. 1- June 30) and the average daily trading value for the previous six months will be recalculated from January 2021 on a semi-annual basis.

For Nomu-Parallel Market, the minimum transaction value will be SAR 300,000 for all listed securities regardless of the average daily traded value. Companies transitioning from Nomu to the main market will be treated as newly listed companies, with the minimum transaction value being SAR 1 million within at least the first six months of the transition.