Structure of Saudi Arabia's Stock Market
Saudi Arabia's stock market is primarily divided into the Main Market and the Nomu Parallel Market. These markets offer different entry points for companies based on their development stage:
1. Main Market
The Main Market is designed for established companies with a solid financial track record. These companies must meet higher market capitalization requirements compared to the Nomu Parallel Market. The Main Market generally offers higher liquidity, allowing for easier buying and selling of stocks.
2. Nomu Parallel Market
The Nomu Parallel Market supports smaller and emerging businesses with a less stringent pathway for raising capital and transitioning to the Main Market. Only qualified investors that meet specific requirements, such as institutions and high-net-worth individuals, can trade in Nomu.
3. Sukuk/Bonds Market
The sukuk and bonds market is essential to Saudi Arabia's financial sector, enabling capital-raising for both government and private entities. These instruments fund infrastructure projects, foster economic growth, and diversify the financial landscape.
Financial Instruments in the Saudi Capital Market
1. Stocks
Stocks represent ownership in a company, giving shareholders a portion of the company. Investors can buy shares on both the Main Market and the Nomu Parallel Market.
2. Real Estate Investment Trusts (REITs)
REITs offer investors the opportunity to invest in real estate assets through a publicly traded vehicle. They provide exposure to the real estate market without the need for direct purchase, management, or financing of properties.
3. Indices
Indices are a type of mutual fund or ETF designed to replicate the performance of a specific market index. By investing in an index fund, you gain exposure to a diversified portfolio that mirrors the underlying assets of the chosen index.
4. Sukuk
Sukuk are financial instruments issued by governments or corporations to raise money from investors for a set period. During this time, they distribute periodic coupon payments at fixed or floating rates. At maturity, issuers repay the principal to investors.
5. Exchange-Traded Funds (ETFs)
ETFs are investment funds that hold a diversified portfolio of assets such as stocks, bonds, or commodities. These funds are traded on Tadawul, much like individual stocks.
6. Closed-End Funds (CEFs)
Closed-end funds are investment funds that raise a fixed amount of capital through an initial public offering (IPO) and do not issue new shares post-IPO. These funds are traded on Tadawul like stocks, allowing investors to buy and sell shares at market prices during trading hours.
7. Tradable Rights
Tradable rights are typically issued when a company seeks to raise additional capital through a rights offering. They ensure that existing shareholders have the first opportunity to buy new shares and avoid dilution of their ownership percentage.
