Derivatives
Introduction:
The launch of the Derivatives Market is one of the Financial Sector Development Program (FSDP) key initiatives under the Kingdom’s Vision 2030. This market enhances Tadawul’s products offering and complements recent developments to the financial market infrastructure. Below you will find more information about the market characteristics. Additionally, we have provided some useful links that will direct you to more educational content.
What is the Derivatives Market?
What is the first product available for trading?
Exchange Traded Instruments:
| Opening Days | Opening Auction | Continuous Trading | Closing Auction | Settlement Cycle | Minimum Lot | Total Exchange Trading Commission* | Security Format |
|---|---|---|---|---|---|---|---|
| Index Futures | |||||||
| Sunday - Thursday | 09:00–09:30 | 09:30– 15:30 | NA(LTP) | T+0 | One contract | SAR 25 | Electronic Form |
*Excludes brokerage fees
Negotiated Deals:
Negotiated Deals occur when both sellers and buyers determine the quantity and price of the Listed Derivatives Product contract involved in the transaction.
Derivatives Market Features
Opening Price:
Open of the market takes place by an auction for Futures Contracts. The auction shall be based on the bids and asks entered during the Opening Auction. The market will open and uncross on a variable basis between 09:30:00am and 09:30:30am every trading day.
Closing Price:
Last Traded Price
IntraDay:
Matching takes place based on price and time priority.
Daily settlement price :
Daily settlement price of the futures contract shall be based on the VWAP (volume weighted average price) of last 10 minutes of the trading day, subject to a minimum of 10 trades in last 10 minutes. If there are less than 10 trades in last 10 minutes, the Exchange shall use the Theoretical Futures Price (TFP) to compute the fair value of the contract at the market close,
Theoretical Future Price calculation:
Spot - Spot/underlying price
r - interest rate
TTE - time to expiry in years
Final settlement price:
The Final Settlement Value shall be the average value, rounded to the nearest 0.5 of an index point (values of 0.25 or 0.75 and above being rounded upwards), taken at every 15 seconds or at such intervals as may be determined by the Exchange from time to time from 14:00 to 15:00 plus one value after 15:10:30 of the index on the Final Trading Day excepting the 3 highest and 3 lowest values.
Tick Sizes:
Minimum price fluctuation of the Futures Contract will be specified by the Exchange in the Listed Derivatives Products Specifications.
Order Types:
- Limit Order
- Market Order
Order Conditions:
- Fill or Kill (“FoK”) means the complete order quantity must be executed as soon as it becomes available for matching; otherwise the order will be immediately cancelled, taking into consideration the following:
-the condition is available for limit and market orders; and
-the condition is not available during the First and Third Sessions. - Fill and Kill (“FaK”) means the order must be at least partially executed as soon as it becomes available for matching; otherwise the order (or the unmatched part) will be immediately cancelled, taking into consideration the following:
-the condition is available for limit and market orders; and
-the condition is not available during the First and Third Sessions. - Hidden Quantity means the order will disclose a portion of its quantity. Each time the disclosed portion is fully matched, the order will disclose an equal portion of its quantity, taking into consideration the following:
-the full quantity of the Hidden Order participates in the Theoretical Opening Prices calculations; and
-the condition is available for limit orders.
Order Validity The Derivatives Trading System determines order validity according to when orders enter the Derivatives Trading System, as follows:
- The First Session: means that orders are subject to full execution at the end of the First Session, and they should be transmitted during the First Session of the same day.
- Day: means that orders are subject to full execution until the end of the Second Session.
- Good till Cancelled (“GTC”): means that orders are subject to full execution with a validity period of up to (30) days from the transmission of the order.
- Good till Date (“GTD”): means that orders are subject to full execution until a specified expiry date. The expiry date can be set up to a maximum of (30) days from the transmission of the order.
Minimum Trade Size:
One Contract
Fluctuation Limits:
| Derivatives Market | |
|---|---|
| Daily Upper Limit | +20% from previous day’s closing |
| Daily Lower Limit | -20% from previous day’s closing |
Derivatives Underlying :
| Product | Underlying |
|---|---|
| MT30 Index Futures | MT30 (MSCI Tadawul 30) |
Contract Months and Year Code:
Example of contract code would be: (Product Code + Expiry Year + Expiry Month) (SF30 + 1 + F )
| Month | Month Code |
|---|---|
| January | F |
| February | G |
| March | H |
| April | J |
| May | K |
| June | M |
| July | N |
| August | Q |
| September | U |
| October | V |
| November | X |
| December | Z |
| Year | Year Code |
|---|---|
| 2020 | 0 |
| 2021 | 1 |
| 2022 | 2 |
| 2023 | 3 |
| 2024 | 4 |
Accessibility by Market participant
| ‘ONSHORE’ INVESTORS | |||||||
|---|---|---|---|---|---|---|---|
| ASSET CLASSES | SECONDARY MARKET ACCESS CHANNEL | VOTING RIGHTS | PUBLIC OFFERING PARTICIPATION | PRIVATE PLACEMENT PARTICIPATION | CAPITAL GAINS TAX/ZAKAT | WITH-HOLDING TAX | OTHER RESTRICTIONS |
| SAUDI INVESTORS | |||||||
| Derivatives | Direct Access | No | No | No | 0% | 0% | Not applicable |
| RESIDENT FOREIGN INVESTORS & GCC RESIDENT INVESTORS | |||||||
| Derivatives | Direct Access | No | No | No | 0% | 0% | |
| ‘OFFSHORE’ INVESTORS | |||||||
| NON-RESIDENT FOREIGN INVESTORS | |||||||
| Derivatives | Direct / Indirect | No | No | No | 0% | 0% | QFI Limits |
Post-Trade Features
| ITEM | DESCRIPTION |
|---|---|
| Clearing Members | General Clearing Member (GCM) and Direct Clearing Members (DCM) connected to Muqassa |
| Settlement Mode | Cash Settlement |
| Settlement Currency | All transactions are settled in Saudi Riyals. |
| Settlement Cycle | Contract are Marked to Market on a daily basis. |
| Margins | Initial Margin, Variation Margin, Add-on Margins. |
| Short Selling | Short selling is embedded in Derivatives market products. |
Trading Cycle and Times
Trading Cycle
Step 1: Buyers and sellers submit orders via the member where their accounts are maintained. This may be achieved through one of the channels provided by the member which includes, but not limited to, electronic trading platform. These orders represent the agreement between the member and the investor to execute a specific business transaction as per the investor order.
Step 2: Orders are entered into the member’s Order Management System (OMS). In accordance with market conditions and the requirement of the investor, the orders within the bank’s OMS are forwarded to Tadawul via a high-speed network.
Step 3: Tadawul attempts to match orders according to price and time priority. A variety of order types and special terms are available to the trader. Unmatched orders are maintained in Tadawul until they are matched, canceled or expire.
Step 4: For matched orders, trades are generated and reported electronically to Muqassa.
Step 5: The execution of the buy and sell orders that together form a trade; consists of one or more contracts and occurs when the same price is specified by buy and sells orders, for a specified number of contracts.
Trading Time
Trading Days: One session, Sunday through Thursday except official holidays
| Session | Time Schedule for Listed Derivatives Products (as per the official time in the Kingdom) |
|---|---|
| First Session: Pre-open (Opening Auction) | 09:00 – 09:30 |
| Second Session: Market Open - Trading | 9:30 – 15:30 |
| Third Session: Market Closed | 15:30 – 16:00 |
| Fourth Session: System Closed | 16:00 – Till 9:00 next trading day |
Official Holidays in the Kingdom of Saudi Arabia are:
- National Day of Saudi Arabia (23 September).
- Eid Al-Fitr and Eid Al-Adha.
Market will be closed during these holidays and announced on Tadawul website
Derivatives Exchange Membership Fees
| Service | Fees(SAR) | Frequency |
|---|---|---|
| Derivatives Membership Fees | ||
| Application fee | 30,000 | One time |
| Annual membership | 10,000 | Annual |
| Other Derivatives Membership Fees | ||
| Trading Workstation Usage fees for new members per station | 11,700 | One time |
| Annual Trading Workstation Usage fees per station | 3,650 | Annual |
Settlement Cycle (T+0)
What is meant by settlement of derivatives contracts?
To debit or credit on a daily basis a margin account based on the close of that day's trading session. The buyer and seller are then aware of the risk of their portfolios and margins, if any. Cash settlement takes place when buyers and sellers contracts are settled against the final settlement price by crediting and debiting their respective accounts with profit or loss.
A T+0 Settlement Cycle means that the Contracts are Marked to Market on a daily basis.