Dual listing between Saudi Stock Exchange and other exchanges

Once we announced the reactivation of BMG’s IPO workshop sessions, planned monthly starting at the end of this month with dedicated sessions on dual listing, we received an overwhelming inquiry about the benefits of dual listing. As we know, the mechanism of a dual listing includes listing any security on two or more exchanges, aiming to benefit from access to additional capital and increased liquidity.

Recently, there were reports that the Chinese and Saudi stock exchanges are in talks to allow exchange-traded funds to list on each other’s bourses as the countries look to deepen financial ties amid warming diplomatic relations. For China, an ETF Connect tie-up with Saudi Arabia will be a gateway to open its trillions of dollars of financial markets to international investors. The cross-listing of ETFs will allow investors in China and Saudi Arabia to trade funds tracking specific stocks or bond indexes listed on each other’s stock exchanges.

As referred to above, the benefits of dual listing include gaining international exposure and access to more potential investors, which means access to more capital. Having shares traded in multiple time zones and in numerous currencies gives issuing companies more liquidity and a greater ability to raise capital, improving the company’s corporate governance, attracting better talents, and using it as an advertising strategy to attract foreign investors.

For the local investors, the dual listing will allow issuers to diversify investment opportunities, especially in the sectors that may not be available in the local stock market.

Before the cooperation with the Chinese stock exchange, Tadawul has been for years upgrading its trading system to accommodate dual listing protocols with other regional and global stock markets. Last February, Dar Al-Arkan, a Tadawul-listed company, announced the admission of Dar Global PLC, its independent international development subsidiary, to the Standard Segment of the Official List of the FCA and the Main Market of the London Stock Exchange. That was the first Saudi company, via its subsidiary, to dual list on the London stock exchange.

Conventional wisdom states that dual listing will attract foreign investments as the benefits of a dual listing in the region are higher to reach global investors. As for the local investors, the dual listing will allow issuers to diversify investment opportunities, especially in the sectors that may not be available in the local stock market.

Saudi Aramco last month met major Turkish contractors to discuss $50 billion worth of potential projects in the Kingdom.

On the other side of the coin, it is worth noting that dual listing has certain disadvantages. Arbitrage is a risk associated with dual listing. This is the practice of taking advantage of a price difference between two or more markets. In this case, arbitrage can lead to share price discrepancies and volatility if not managed correctly.

Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group.