Interview with Mohammed Sulaiman Al-Rumaih, CEO, Saudi Exchange

29 Feb Interview with Mohammed Sulaiman Al-Rumaih, CEO, Saudi Exchange

In April 2021, you were appointed to your current role after the transformation of the Saudi Stock Exchange (Tadawul) into a holding company (Saudi Tadawul Group Holding). Can you explain how this exciting development changed the organization? How is the new nature of the institution serving its mission and objectives?

During my time at the Saudi Exchange, I have been fortunate enough to witness a remarkable transformation, aligned with the goals of Vision 2030. In 2018, the government introduced the Financial Sector Development Program (FSDP) with a clear mission to redefine the financial landscape in Saudi Arabia. This initiative places emphasis on bolstering both equity and debt markets, aiming to fortify financial institutions in the Kingdom, enhance competitiveness, and propel the overall growth and advancement of the financial market in Saudi Arabia.

Personally, it has been a very rewarding journey. At the Saudi Exchange, we have actively taken significant steps to support the FSDP by improving our market infrastructure, thereby unlocking opportunities for all market stakeholders, be they regional or global investors and issuers.

The transformation of our business into a holding company has played a key role in driving the development of our capital market, while strengthening our market infrastructure, and providing best-in-class services for all market participants. The interdependence of each subsidiary of the Saudi Tadawul Group, including the Saudi Exchange, underscores our commitment to growth and innovation while building and providing strategic flexibility. This, in essence, means that we can respond rapidly to evolving global and regional market trends, allowing us to compete with global Exchanges and capital markets.

For example, since our transformation we have launched the largest bundle of post-trade enhancements through the Post Trade Transformation Program (PTTP). This enables us to consistently provide top-tier services to local and international investors, thereby cultivating an increasingly appealing investment environment for all participants in the market.

In recent years, we have witnessed a surge in Initial Public Offerings (IPOs), leading us to be ranked among the top 10 exchanges in the world in terms of both the number and size of IPOs in 2022 and 2023. In 2023, we welcomed more than 35 listings, and 2024 shows no sign of slowing down with 40 applicants in the pipeline, with 10 already receiving regulatory approval. We kicked off the year with a couple of listings, and we expect the number of IPOs to accelerate as the year progresses.

We have also emerged as one of the largest markets for attracting foreign investments, ranking as the second largest emerging market in net inflows. If you examine the growth in both the number of investors and the amount invested in our market, you will see a great growth story that began in 2016 and has continued through December 2023, the most recent available data. Over the years, our market has consistently recorded net inflows, and we anticipate that this will continue. This is attributed to our ongoing evolution, advancements in our tools, and the continuous improvement of our infrastructure.

Furthermore, the narrative of Saudi Arabia’s transformation is gaining momentum and credibility as people witness these changes. Investors, tourists, sports stars are all attracted to this vibrancy that we are experiencing and are keen to take part in Saudi Arabia’s pivot towards becoming a significant player on the world stage.

The launch of the Derivatives Market in 2020 increased the attractiveness for overseas share buyers. After the effective launch of Single Stock Options (SSO) last year, how do these align with Saudi Exchange’s mission, influencing its global position? Additionally, could you highlight any launches, products, and services since 2020 that stirred interest and achieved significant milestones?

At the Saudi Exchange, we play a pivotal role as a key hub connecting markets from the East to the West, connecting global investors with opportunities within the MENA region, and more specifically in Saudi Arabia. As an exchange, we are focused on developing a world-class capital market experience for issuers and investors. The key component of that is to ensure that our infrastructure services and products are as technologically advanced and sophisticated as possible.

The Derivatives Market has emerged as an important area, witnessing growing interest from both local and international investors. In August 2020, we launched our first derivatives product, marking an important milestone in the development of our product offering. Following the successful launch of our first product – index futures – we expanded our offering in June 2022 with the introduction of Single Stock Futures, responding to increased demand, particularly from international investors seeking diversified offerings and hedging tools in the Saudi capital market.

In 2023, we introduced SSO aligned with the goal of the Vision 2030 FSDP to enhance the Derivatives Market and ensure market liquidity. Our inclusion in the FTSE Emerging Markets Government Bond Index in October 2021 marked the first time that Saudi fixed-income instruments were included in a global index. They have subsequently been included in IHS Markit indices which include the government’s Sukuk market in the iBoxx global bond index, reflecting the impact of our enhancements.

Over the course of the last decade, we have been looking to foster greater collaboration with other regional exchanges, facilitating direct connections with investors in foreign markets. Through our partnerships and linkages, we are working to establish the infrastructure required to support dual listings and cross-listings from multiple markets across Asia, the Middle East and Europe.

For example, in December 2022, we welcomed the first concurrent dual listing of Americana on the Saudi Exchange and Abu Dhabi Securities Exchange, marking a new era of interconnectivity between us and regional exchanges. We were encouraged by the positive response received during this transaction, further solidifying our status as a key capital market for both issuers and investors.

Could you share details of some key alliances, achievements, and insights into ties with major global Stock Exchanges? Where does Saudi Arabia stand in implementing its ambitious FSDP?

Saudi Arabia has made remarkable strides in economic diversification through the Vision 2030 program, which has implemented forward-looking policies to stimulate investor interest and capital inflows.  For example, because of ongoing economic reforms, Saudi Arabia recorded a 29.1% surge in foreign direct investment (FDI) inflows in the third quarter of 2023, compared to the previous three months.

The FSDP continues to play a pivotal role in the ongoing advancement of our market. We have been included in major global benchmark indices, including MSCI, FTSE Russell, and S&P Emerging Market indices. Our inclusion has resulted in significant investment from international institutions. Presently, the Saudi Exchange boasts 300 listed securities, and the pace of growth is robust, with more than 45 listed securities being added in the past year.

Introduced in 2015, the Qualified Foreign Investor (QFI) program allows international investors to participate in the Saudi capital market. Continuous enhancements, in collaboration with key stakeholders, especially regulators, have made the program more accessible. Notably, the Capital Market Authority’s significant update last year, which further streamlined the QFI program, following its last major update in 2018. Between 2018 and 2023, the number of registered QFIs increased by 722% to stand at more than 3,720 registrations by the end of 2023.

As part of our efforts to encourage cross listings, we are actively pursuing partnerships with regional and global stock exchanges. To this end, we have signed multiple Memoranda of Understanding (MOU) with regional exchanges in the UAE, Qatar, and Kuwait, as well as international exchanges in Singapore, Hong Kong, Shanghai, Shenzhen, and Astana. These collaborations not only create new opportunities for cross-listing but also serve as platforms for knowledge exchange in areas like ESG and Fintech.

Given Saudi Arabia’s commitment to strengthening ties with the US, particularly in the context of the strategic relationship and substantial trade, how does the Saudi Exchange plan to leverage this unique position to attract American businesses and investors?

The significance of the US market cannot be overstated for any global capital market, and this holds true for us as an exchange embarking on a journey to become a major player on the international financial stage.

Since the launch of the QFI program, the US has been our primary destination for attracting investors, particularly institutional investors who have become key players in our market. As of 31 January 2024, American QFIs comprise 43% of the registered QFIs on the Saudi Exchange.

Our proactive engagement includes regular investor targeting roadshows in collaboration with major American investment banks such as JP Morgan, Morgan Stanley, and Merrill Lynch, all of which operate within the Kingdom, and rank among the most active brokers in the Saudi market.

I cannot talk about our collaboration with American firms without mentioning our long-standing relationship with Nasdaq, our strategic and technology partner since the inception of the Saudi Exchange. They have provided us with the technology required in our trading systems as well as enabled us to launch PTTP in 2022 which was the biggest bundle of post trade enhancements in the history of the Saudi capital market. We continue to value our relationship with Nasdaq and look forward to enhancing the Saudi capital market through cooperation and collaboration with the largest American firms, which in turn, happen to be our biggest investors.

We have a great relationship with the US institutions, and we see this as something that will continue to develop particularly as our market grows and we introduce additional products and services, in areas such as market information or with new securities.

Climbing 15 places in the Global Innovation Index 2022 signals unprecedented transformation. After highlighting milestones and achievements, what’s the Saudi Exchange’s vision for the next few years, especially in technology, cybersecurity, products, services, and market growth?

Saudi Arabia is uniquely positioned and strategically located at the heart of major international economies, acting a bridge between the East and the West. Our plans for growth rest on seven strategic growth pillars: equity and capital formation, global debt hub, global commodities, derivatives and OTC, global securities services, data and analytics and finally, a unique global IP. Here, I would like to emphasize the key role that data plays; it is often an underrepresented aspect in service offerings and we are globally focused on cultivating unique intellectual properties.

To give you some specific near-term examples, we are striving to enhance our market presence in the Saudi economy. Our strategic aims include positioning ourselves as the focal point for capital formation, extending beyond Saudi Arabia to encompass the MENA region. Additionally, we aspire to establish a global Islamic finance hub and leverage our local competitive advantage in commodities.

In addition, as the world transitions to net zero, we have invested and become a partner in the Voluntary Carbon Market, established in partnership with the Public Investment Fund (PIF). Furthermore, our strategy involves enhancing the growth of our equity market by introducing a broader range of derivatives products. We aim to expand our existing index franchise within the comprehensive market data product portfolio. These initiatives form part of the seven growth pillars I mentioned earlier, providing a glimpse into our near-term focus. As our growth continues, expect to witness the unveiling of more announcements and ambitious plans that will be shared with the public.

And your final message to readers of USA Today?

Our travels to the US have been frequent and we regularly meet with some of the country’s top asset managers to discuss the latest trends, our recent modifications, and our plans. The depth of their understanding and their expertise on the Saudi market never ceases to astonish me.

Comparing the present to the year 2015, the difference is stark. Back then, we had to spend considerable time elaborating on the Saudi environment, including details about the legal framework. However, we now find that they are well-informed and up to speed with the latest developments. While this increased interest is encouraging, it also places a higher demand on us to excel.

I can confidently tell that that Saudi Arabia is a land brimming with opportunities, a place where dreams become reality. We encourage them to witness it firsthand, to immerse themselves in the experience, to evaluate the entities we have in our market and beyond, and to appreciate the culture from every angle. We want them to find joy in doing business while also enjoying the cultural aspects. I could talk endlessly about Saudi Arabia and hope that they will come and see it for themselves.