181217  tadawul 2
Saudi Arabia will soon introduce futures trading on single stocks to further boost liquidity. Image Credit: Reuters

Riyadh: Saudi Arabia will soon introduce futures trading on single stocks to further boost liquidity in the Middle East's biggest stock market, people familiar with the matter said.

The Tadawul stock exchange plans to allow futures trading in five to 10 companies initially over the next few weeks, the people said, asking not to be identified as the information is private. The bourse will start registering more stocks when they meet certain criteria, they said.

The Tadawul didn't immediately respond to requests for comments.

The step would mark the latest move toward liberalizing Riyadh's stock exchange and encouraging participation from foreign investors. The kingdom opened up one of the world's most closed stock markets to increased international participation just over five years ago, and later started allowing foreign investors to buy into initial public offerings.

In September 2020, Tadawul Group Holding Co. Chief Executive Officer Khalid Al-Hussan said the bourse planned to introduce futures contracts in single stocks. Index futures started trading in Riyadh in August that year.

Exchanges in the Gulf region are increasingly introducing derivatives trading, with Dubai Financial Market and the Abu Dhabi Exchange setting up markets for equity futures contracts.

The Saudi benchmark index has jumped about 11 per cent this year, building on a 30 per cent gain in 2021. Riyadh has led the region in initial public offerings, and the pipeline for listings is "deeper than ever," Al-Hussan said after Tadawul surged on its own trading debut in December.

Options give the buyer the right to buy the asset at a fixed price without obligation on the part of the buyer to go through with the purchase, while a futures holder is bound to buy on the future date.