Tadawul launches single stock futures today

Tadawul trading screen

The Saudi Exchange (Tadawul) launches single stock futures (SSFs) contracts today, July 4, which will be cleared by the Securities Clearing Center Co. (Muqassa). 

The SSF is an agreement, under which the buyer and seller complete a transaction at a specified date in the future. The SSF value is based on the value of underlying shares (underlying asset).

The SSFs are the second derivatives product to be introduced on Tadawul, after the launch of Index Futures, as part of the wider efforts to develop an advanced capital market in Saudi Arabia.

The SSFs will enable local and international investors to hedge and manage portfolio risks more effectively as well as diversify products available for trading in the market.

The selected underlying stocks for the SSFs were chosen from the largest and most liquid companies listed on Tadawul. They are based on criteria that aim to ensure liquidity in an effort to meet market demand, maintain market integrity, and enable effective portfolio management.

The first tranche of SSFs will be based on the following listed companies: Al Rajhi Bank, Saudi Aramco, Saudi National Bank (SNB), Alinma Bank, SABIC, stc, Saudi Kayan, Saudi Electricity Co. (SEC), Almarai and Saudi Arabian Mining Co. (Maaden).

The SSF launch will enable the expansion of Tadawul’s derivatives market to include additional derivatives products.

Individual DPMs: Saudi individual investment account in which the manager (Authorized Person) makes the buy/sell decisions for its client without referring to the account owner (based on to the agreed terms between them).

** Qualified Investor -> Natural Person

*** Clients who are not under any of the other categories defined in this document

Key Facts:

- They are standardized futures contracts for single stocks that are considered underlying assets.

- SSFs value is based on the value of underlying shares.

- SSFs can be traded on Tadawul through opening an account with a brokerage registered for derivatives trading and depositing the required collateral.

- Margin requirements apply to both buyers and sellers.

- SSFs allow investors to hedge their stock portfolios and allow traders to explore the price movement of the underlying stocks.

- SSFs allow short-selling for investors without owning the underlying stocks.

- SSFs performance is usually correlated to the performance of underlying stocks.

- SSFs holders are not entitled to vote in the general meetings.

- SSFs holders are not entitled to dividend distributions.

 What is the difference between SSF and stock trading?

Both stocks and SSF are traded on Tadawul, and provide exposure to the movement of the underlying stock prices. SSF provides different investment opportunities for market participants.

Benefits of trading SSF:

- Allowing institutions and individuals to hedge their portfolios to reduce losses in adverse market conditions

- Allowing investors to develop a strategy focusing on the shares of a single company instead of a group of shares compared to index futures

- Allowing investors to access the market with less capital through the initial margin

- Increasing profitability by making use of the financial leverage

- Increasing the flow of liquidity towards the stock market

Risks

Derivatives carry risks similar to other financial market products. SSF may expose trading parties to certain risks, including market volatility and liquidity.