The chief executive of Saudi Arabia's stock exchange told CNBC Wednesday that it is well-placed to cope with the pressures of the world's largest ever initial public offering (IPO).
Saudi Arabia recently shelved plans to sell a 5 percent stake in state-owned energy giant Aramco, reportedly amid valuation and regulatory concerns. Nonetheless, the IPO remains critical to Crown Prince Mohammed bin Salman's ambitious plan to overhaul the kingdom's economy.
So far, Saudi Arabia's stock market — also known as Tadawul — is the only confirmed listing exchange for Aramco.
"I think the Saudi stock exchange will continue to develop its markets to be ready for Aramco and other issues," Khalid Al Hussan, who heads the exchange, told CNBC's "Street Signs" on Wednesday.
Saudi Arabia hopes to attract a $2 trillion valuation for Aramco — the world's largest oil company — though some external observers have pegged its value at half that amount.
Amin Nasser, CEO of Aramco, told CNBC earlier this year that his company was prepared for a public offering in the second half of 2018, but was waiting for the government to choose an exchange. Indecision over the listing venue is widely thought to have snarled the process.
Tradeable index
Meanwhile, Saudi Arabia's stock exchange will introduce exchange-traded derivatives in the first half of 2019. On Tuesday, global index provider MSCI said it had reached a deal with Tadawul to jointly launch a tradeable index.
An exchange traded derivative is a financial instrument that trades on a regulated exchange and whose value is based on the value of another asset.
"The benefit is basically to offer more diversified products, specifically to institutional investors," Hussan said, before adding, "the inflow of capital depends on how attractive we are and that is basically why we are accelerating the derivatives."
The announcement of a tradeable index comes after MSCI officially classified Saudi Arabia's equity market as an emerging market in June. Riyadh's inclusion on the emerging market index is widely expected to attract billions of dollars of passive funds.
Saudi Arabia has launched a flurry of market reforms in recent years, as part of a broader effort to encourage direct investment into the kingdom from foreign institutions. The Middle-Eastern country has also eased restrictions on foreign ownership of companies.
The reforms have attracted some of the world's largest money managers to invest directly in Saudi Arabia's equity market, including BlackRock, HSBC and Citigroup.
