Saudi Markets Pivot to Global Standards: Tadawul's Tick Size Overhaul Boosts Liquidity and Attracts Capital

The Saudi Stock Exchange (Tadawul) has taken a decisive step toward modernizing its market infrastructure with the implementation of revised tick size bands on June 29, 2025. This move, part of Vision 2030's Financial Sector Development Program (FSDP), introduces tiered pricing increments designed to reduce transaction costs, enhance liquidity, and align Saudi capital markets with global standards. For Gulf Cooperation Council (GCC) investors, the changes—particularly the new SAR 500+ band—are a catalyst for re-evaluating high-value equities and positioning portfolios to capture efficiencies in a more competitive market.

The New Tick Size Regime: Precision Meets Liquidity

Prior to June 29, Tadawul operated with a uniform tick size of SAR 0.25 for all stocks, a one-size-fits-all approach that created inefficiencies, especially for high-value shares. The revised structure, effective after the cancellation of all outstanding orders on June 26, introduces six distinct bands based on share price:

• SAR 0.01: For shares priced between SAR 0.01–24.99
• SAR 0.02: SAR 25.00–49.98
• SAR 0.05: SAR 50.00–99.95
• SAR 0.10: SAR 100.00–249.90
• SAR 0.20: SAR 250.00–499.80
• SAR 0.50: SAR 500.00+

The most significant innovation lies in the SAR 500+ band, where the tick size expands to SAR 0.50. This adjustment ensures high-value stocks—often traded by institutional investors—benefit from narrower bid-ask spreads, reducing trading costs and improving price discovery. For example, a stock trading at SAR 1,000 now moves in increments of SAR 0.50, compared to SAR 0.25 previously. This precision is critical for large-cap equities in sectors like technology, energy, or financial services, where small price movements can mean substantial capital gains.

Immediate Implications: Cost Savings and Liquidity Gains

The overhaul directly addresses two pain points for GCC investors: high transaction costs and fragmented liquidity. Narrower ticks reduce the cost of hedging and executing trades, while the tiered structure incentivizes trading activity across all price ranges. For instance:

• Active Traders: Smaller increments allow tighter spread pricing, minimizing slippage on large orders.
• Long-Term Investors: Reduced volatility in high-value stocks could lower portfolio risk, encouraging allocations to sectors like Saudi Aramco (SE:2222) or SABIC (SE:1101), which often trade in the SAR 500+ tier.

The canceled orders on June 26 also serve as a strategic reset, forcing market participants to adapt to the new bands. This creates short-term volatility but long-term stability, as the system weeds out outdated algorithms and recalibrates liquidity pools.

Global Alignment and Cross-Border Appeal

Tadawul's reforms mirror trends in mature markets like the U.S. and Europe, where tick size optimization has been central to modernizing exchanges. The SAR 500+ band, for instance, aligns with the NYSE's tiered increments for high-priced stocks like Apple (AAPL) or Microsoft (MSFT). This global consistency is critical for attracting cross-border capital, as foreign institutions now see Tadawul as a more “legible” market.

Moreover, the reduction of access fee caps to 0.1% for stocks under SAR 1.00 and SAR 0.001 for higher-priced shares further lowers barriers to entry. For UAE-based funds or GCC retail investors, this creates a more level playing field, enabling them to compete with global peers.

Investment Strategy: Target High-Value Sectors and Monitor Liquidity

The June 29 changes are a buy signal for investors focused on Saudi Arabia's growth story. Key recommendations:

1. Focus on High-Value Stocks: Prioritize large-cap equities in sectors with inherent liquidity, such as energy (e.g., Saudi Aramco) or financials (e.g., National Commercial Bank). Use the SAR 500+ band's precision to capture incremental gains.
2. Leverage ETPs: Exchange-traded products tracking Tadawul's indices (e.g., iShares MSCI Saudi Arabia ETF) offer diversified exposure to the new tick structure's benefits.
3. Monitor Liquidity Metrics: Track daily trading volumes and bid-ask spreads in the SAR 500+ tier. Rising liquidity here signals Tadawul's maturation as a global market.

Risks and Considerations

While the reforms are broadly positive, risks remain. Smaller-cap stocks in lower tick bands (e.g., SAR 0.01–0.05) could see reduced liquidity if trading activity migrates to higher-priced shares. Investors should also monitor regulatory stability, as further adjustments to liquidity bands (per EU-style frameworks) may follow in 2026.

Conclusion: A New Era for Saudi Capital Markets

Tadawul's tick size overhaul is a landmark moment in Saudi Arabia's financial evolution. By aligning with global standards, the exchange has positioned itself as a dynamic market capable of attracting both domestic and international capital. For GCC investors, the SAR 500+ band and reduced transaction costs create opportunities to build resilient portfolios in high-value sectors. As Vision , 2030's ambitions take shape, now is the time to act—before global investors do the same.