Saudi Arabia has undertaken several reform initiatives to advance secondary market trading in fixed income instruments, such as bonds and deeds.
Prior to the decision to restructure the financial compensation for issuers and traders and the accompanying reduction in trading fees during April 2019, Saudi Arabia listed and issued its sovereign issues for the first time during 2018.
This decision was followed by the use of market makers, "who are authorized to stimulate secondary trading for government issues," and both events occurred in July 2018.
Previously, trading fees were described by observers as exaggerated, reaching ten basis points, "eight basis points that go to licensed companies, that are brokerage firms," and two basis points that are divided equally between the Capital Market Authority and "Tadawul".
One of the reasons for the licensed companies obtaining eight basis points is due to the lack of liquidity, which leads to limited deals per month, but the level of monthly trades has taken a high track since the inclusion of government debts, which has led to the maximization of the numbers and values of executed deals.
In April 2019, a long-awaited package of reforms was announced by workers in the fixed income markets in Saudi Arabia, as the financial compensation for services provided to issuers and traders was restructured.
The restructuring of fees is directed to two tranches. The first is the issuers and these amendments will contribute to reducing the fees related to listing on the stock exchange by touching 25%. This number may increase and decrease, according to factors related to the issuing party.
On the other side, trading fees have been reduced for the benefit of investors, as the share of a trading company is between half a basis point to half a point, "except in cases where either the seller or the buyer is a specific initial customer."
It is expected that the decision to raise the controls on the commission of brokerage companies, by removing the lower and upper limits for executing purchase and sale deals, will lead to creating competition between these companies by offering low fees to attract clients.
In case of executing any deeds deal, Tadawul will deduct its stake from the financial consideration, as well as the brokerage company through which the purchase or sale order was made.
With the rise in the value of the unit of a single instrument "which is equivalent to an alpha" compared to share prices, this means that the average rate of government deeds deals "per deal" for each individual investor will be higher when compared to equity deals, and therefore it is natural that the fees for executing the purchase and sale deals of the instruments obtained Brokerage firms.
At a time when the number of financial brokerage firms in the Saudi stock market reaches 31 companies, this number varies with the market of bonds and bonds. After referring to all the brokerage companies that have implemented buying and selling deals in the secondary market for "Saudi debt markets" within three years, it is clear that the numbers of companies The monitored brokerage are 12 companies, "including five market makers".
New Gulf exporters
The total issuance of Gulf entities that issued in hard currencies for the first time in 2019 reached up to $ 17 billion, "including the issuance of Aramco bonds of $ 12 billion," according to the research study "On Fixed Income Management" of First Abu Dhabi Bank, which indicated that the number of issuers El Jadida reached 11 destinations.
Issuers in the Gulf and emerging markets are still taking advantage of favorable conditions for borrowing in light of the low cost of financing globally.
The "commercial war fears" in 2019 contributed to making the benchmarks "that we use with the pricing of bonds and bonds" trading at low levels, which contributed to reducing the "cost of financing" for the Gulf.
It is known that the "NASDAQ Dubai" has become the preferred platform for listing the Chinese issuers, which hosts more than nine dollar issues from the Asian country.
The “profitable returns” of deeds and bonds are located in the acceptable region of “the two sides of the equation, which are the investors” who see that the returns of the new issues are still attractive and among issuers that “see that the returns are still low”.
* Economic Reports Unit