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Interview: Saudi bourse adjusts rules to attract foreign funds, ease Aramco IPO

Reuters  |  DUBAI 

By Andrew Torchia

(Reuters) - Arabia's stock is adjusting its rules to make it easier for foreign investors to trade - steps that may help the bourse absorb a huge IPO by giant this year, the exchange's said on Wednesday.

"These changes are required by the growth of the market and what international institutions tell us," said in a telephone interview from

Trading limits will be made more flexible for the exchange's independent custody system, Hussan said. The system allows foreign investors to use a global bank rather than a to hold their assets.

Meanwhile, foreign asset managers will be allowed to aggregate the orders of their portfolios and funds, helping them obtain better prices. Both changes are to take place by Jan. 21.

Arabia opened its market to direct investment by foreign institutions in mid-2015 and is keen to boost capital inflows, partly to facilitate the initial public offer of shares in and other privatisation plans.

aims to sell about 5 percent of in the second half of 2018, potentially raising $100 billion if it achieves the $2 trillion valuation for the company that it has projected. Many private analysts think that target is too optimistic but that the IPO will still be the world's largest.

Authorities have said they will list Aramco's shares in and also aim for a listing in at least one foreign market; options include New York, and Hong Kong, but officials say a choice has not been made.

With a capitalisation of about $450 billion, Riyadh's market could struggle to absorb shares, plus tens of billions of dollars in other privatisations envisioned in coming years, without the participation of foreign funds.

Hussan said in October that his hoped to be the only venue for listing and could handle all of the IPO.

He repeated this on Wednesday, but stressed he had received no word of any decision by authorities on foreign listing venues.

"As an exchange, it is natural for us to aspire to be the only place for listing and we are taking all necessary measures to be ready for that, if that is the decision. We are waiting for the decision."

This month's reforms may encourage global equity index providers to upgrade Arabia, which would attract more foreign money. MSCI will announce this June whether it will add Arabia to its emerging markets index, while FTSE has said it will probably decide in March to do so.

Other planned reforms, which the intends to introduce by mid-2018, include using an auction method to determine closing stock prices instead of the current volume-weighted average price method, Hussan said.

A system for market makers - firms that improve liquidity by holding inventories of stocks, ensuring they can offer buying and selling prices continuously - will be introduced by mid-year, he said.

The development of market makers would pave the way for the to introduce equity derivatives, which could help to attract foreign investors by giving them ways to hedge.

Hussan said stock futures and options were expected to be introduced in 2020, after reforms to the clearing system.

At the end of 2017, 118 foreign institutions had registered to invest on the

All types of foreign investor, including those owning stocks indirectly through swaps, now hold about 4.2 percent of the market.

The has been working with the securities regulator in its drive to attract foreign funds. On Tuesday, the said it was easing requirements for foreign institutions to qualify as investors.

authorities are also keen to develop the as a place for trading debt, in order to deepen the country's capital markets.

Trading of government bonds on the is expected to begin this year, Hussan said.

(Reporting by Andrew Torchia; editing by Jason Neely)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, January 10 2018. 18:52 IST