Saudi exchange to limit Aramco index weighting with cap

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Saudi Arabia’s Tadawul said on Monday that it has introduced an equity index cap of 15 percent, a move which will address concerns over the weighting Saudi Aramco will have when it lists on the exchange.

The move was made to “to reduce dominance of larger companies on the index performance so that the weights of all index constituents remain under a set capping threshold,” the Tadawul said in a statement.

In most stock market indexes, the stocks are weighted according to their total market capitalization, which means companies with a higher market cap carry more weighting percentage.

Saudi Aramco is expected to list 1.5 percent of its shares on the Tadawul this month in a deal that could raise more than $25 billion. The company has set an indicative price range of 30-32 riyals per share ($8-$8.53), which would value the oil giant at $1.6-$1.7 trillion.

“Any constituent whose index weight reaches or exceeds the threshold will be capped in accordance with the set limit,” the exchange said in a statement.

It also announced several other changes, including revisions in free float shares calculation methodology.

“The update to Tadawul’s indices methodology reflects our continuous efforts to further develop the Saudi capital market and ensure more balanced indices,” Tadawul's CEO Khalid Al Hussan said.

Tadawul is also applying a new rule for “Fast Entry,” whereby shares of significantly large IPOs are included in its all-share equity index at the close of the fifth trading day.

The new updates will be effective by the end of the fourth-quarter.

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