Saudi working on SME bourse rules for early 2017 launch

Saudi Arabia is working to finalise the rules for a new stock market dedicated to small and medium-sized businesses that it expects to launch early in 2017, the chief executive of Tadawul, the kingdom’s bourse, said on Tuesday.

Tadawul announced last month that it planned to open the new exchange next year in a bid to improve access to capital and encourage better corporate governance.

Saudi Arabia’s economy is dominated by family businesses, many of whom have been reluctant to go public in the past, preferring to keep control limited to a small group of relatives.

“The final fine-tuning of these criteria are being worked out today with related parties,” Khalid al-Hussan said on the sidelines of a finance event.

The government has not said if the new exchange will include companies already traded on the existing bourse. Small-cap firms are among the most heavily traded on the Saudi exchange as they are targeted by retail investors aiming to make a quick profit.

Chairman of the Saudi Capital Market Authority, Mohammed al-Jadaan, told the same conference that there would be certain restrictions in place to ensure only investors who understood the risks could buy into the SME market. He did not give more details.

While international institutions have been allowed to invest in Saudi Arabia since the middle of last year, trading on the kingdom’s stock market is still dominated by local retail investors.

Jadaan said the new SME exchange would likely have a lower minimum capital requirement for companies than Tadawul, adding it could be in “single digits” as opposed to Tadawul’s 100 million riyals ($27 million) baseline.

Reduced disclosure requirements would also likely be part of the SME market, Jadaan added.