Tadawul implements changes to opening and closing price mechanism

The Saudi Stock Exchange (Tadawul) today announced that previously disclosed enhancements to its opening and closing price mechanism will be implemented effective May 27, 2018.

Changes to the methodology for determining opening and closing prices apply to both the Main Market and Nomu - Parallel Market. These include moving from a Volume Weighted Average Price (VWAP) to an auction method for determining closing prices; and enhancing the opening price auction in line with practices adopted by most other major markets.
 
The previous VWAP methodology for determining closing prices has been replaced by a 10-minute auction after the end of continuous trading (3 pm local time in Riyadh), during which investors determine the price of securities through participating in the auction by placing bid and ask orders.

Opening prices will continue to be determined by auction but market orders shall be displayed unpriced at the top of the order book during the auction period, and a single index opening value will be published after all order books have uncrossed.

Both the market open and market close times will be randomized within 30 seconds after official open (10am local time in Riyadh) and close (3:10pm local time in Riyadh) times to further enhance investor protection and market soundness.

 “These enhancements to price mechanisms further align Tadawul with international best practices and the processes used by other major markets,” said Khalid Abdullah Al Hussan, Tadawul CEO.

“The result is expected to be greater price efficiency, increased liquidity, reduced market volatility and enhanced security for both investors and intermediaries, and thus creating a more attractive investment climate for domestic and international investors,” he added.

The planned changes to the opening and closing price mechanism were first announced by Tadawul on Jan. 10, 2018 as part of a series of measures to improve market access and efficiency, enhance liquidity, bolster investor security, mitigate risk and further align market practices with global best practices.

Other market enhancements already implemented include: 

- Updating the Independent Custody Model (ICM) to enhance Qualified Foreign Investor access to the market.

- Introduction of a new optional model to allow asset managers to aggregate the orders of managed assets (discretionary portfolios “DPs” and investment funds), assuring best execution and fair allocation for their funds and clients.