Saudi Stock Market Caps First-Day Price Volatility

The Saudi Capital Market Authority (CMA) announced on Sunday that stocks on the kingdom’s bourse would be limited to price swings of 10 per cent on their first day of trade.

Saudi Arabia, home to the Gulf Arab region’s largest stock exchange, has been slowly amending its regulatory framework to bring it closer to international standards; market participants hope this will allow the bourse to open to direct investment by foreigners, a step which authorities are considering.

Mohammed bin Abdulmalik Al al-Sheikh, head of the CMA, said last week that the regulator was trying to limit “high levels of speculation” in the stock market.

Until now, firms debuting on the Tadawul had unrestricted price movement on their first day of trading, meaning shares often soared before falling back later.

When National Medical Care Co listed on March 13, it traded up intra-day to a high of 200 riyals ($53.33) from its initial public offer price of 27 riyals, before ending its first day at 122 riyals. By March 31, the share slid to 72 riyals.

The new limit on first-day price moves is “part of the CMA’s regulatory responsibility to regulate and develop the capital market and protect citizens and investors”, the CMA said.

Saudi Arabia has used IPOs to distribute stakes in government companies at vastly deflated prices – often 10 riyals a share – as part of efforts to share the country’s oil wealth with ordinary citizens.