Saudi Stock Exchange (Tadawul) has announced major changes in the methodology for determining the opening and closing prices on both the Main Market and Nomu - Parallel Market - effective from May 27 onwards.

Tadawul is the sole entity authorised in the Saudi Arabia to act as the kingdom's securities exchange, listing and trading in securities.

The changes to the methodology for determining opening and closing prices include:

•Moving from a Volume Weighted Average Price (VWAP) to an auction method for determining closing prices;
•Enhancing the opening price auction in line with practices adopted by most other major markets.

The previous VWAP methodology for determining closing prices has been replaced by a 10-minute auction after the end of continuous trading (3pm local time in Riyadh), during which investors determine the price of securities through participating in the auction by placing bid and ask orders.

Opening prices will continue to be determined by auction but market orders shall be displayed unpriced at the top of the order book during the auction period, and a single index opening value will be published after all order books have uncrossed.

Both the market open and market close times will be randomized within 30 seconds after official open (10am local time in Riyadh) and close (3:10pm local time in Riyadh) times to further enhance investor protection and market soundness.

Announcing the key changes, Tadawul CEO Khalid Abdullah Al Hussan said: "These enhancements to price mechanisms further align Tadawul with international best practices and the processes used by other major markets."

"The result is expected to be greater price efficiency, increased liquidity, reduced market volatility and enhanced security for both investors and intermediaries, and thus creating a more attractive investment climate for domestic and international investors," he added.

The planned changes to the opening and closing price mechanism were first announced by Tadawul on January 10 as part of a series of significant measures to improve market access and efficiency, enhance liquidity, bolster investor security, mitigate risk and further align market practices with global best practices.

Other market enhancements already implemented include:

•Updating the Independent Custody Model (ICM) to enhance Qualified Foreign Investor access to the market by providing more flexibility in trading limits for ICM clients and new procedures to mitigate credit risk associated with the settlement process for all participants
•Introduction of a new optional model to allow asset managers to aggregate the orders of managed assets (discretionary portfolios “DPs” and investment funds), assuring best execution and fair allocation for their funds and clients.

With a market capitalisation of $500 billion, the Saudi stock market is the 24th largest bourse among 68 members of the World Federation of Exchanges, and is the dominant market in the GCC comprising 48 per cent of total GCC market capitalization and 75 per cent of value traded.-TradeArabia News Service