Dubai: Saudi Arabia’s Tadawul on Monday set an equity index weight limit of 15 per cent, a move which comes amid questions on dominance of oil giant Saudi Aramco when it lists on the exchange.
The exchange’s All Share Index will be capped with the threshold to “reduce dominance of larger companies on the index performance,” Tadawul said on Monday, adding that “any constituent whose index weight reaches or exceeds the threshold will be capped in accordance with the set limit.”
The measures are being introduced just ahead of Saudi Aramco’s hotly anticipated float of its shares on the market. It looks to list 1.5 per cent of its shares this month in a deal which could raise more than $25 billion and top the record initial public offering (IPO) of Chinese e-commerce titan Alibaba on the New York Stock Exchange in 2014.
The listing of the mega-IPO on Tadawul, where the largest listing so far is valued at about $6 billion, represents a huge leap into the big league for a 12-year-old exchange that only admitted foreign investors four years ago.
It is widely seen as a test for the exchange, given that blockbuster IPOs have a history of causing technical malfunctions on stock markets as they can lead to a rush in trading orders that clog an exchange’s system and can prevent the buying or selling of stock. Facebook’s 2012 listing on Nasdaq was hit by widespread delays and problems processing the huge volume of orders.
The cap announced on Monday comes as a part of a broader update of Tadawul’s index methodology, including a revision of the free float shares calculation methodology for shares owned by government entities.
“The update will ensure more balanced indices, which will accurately represent the movement of the market, enhance disclosures and transparency and minimise securities’ dominance,” Tadawul’s CEO Khalid Al Hussan said.
Tadawul also said it has applied a new “Fast Entry” rule allowing shares of IPOs to be included in the all-share equity index at the close of the fifth trading day. The updates will be effective by the end of the year.