Stocks surged as Saudi Arabia launched a secondary equity market on Sunday, creating a new opportunity for smaller and family-run firms but restrictions could make achieving high trading volumes and liquidity difficult.
The new Parallel Market aims to improve companies' access to capital and expose them to market disciplines in an economy dominated by small and mid-sized enterprises, most of which are family-owned.
Many family firms in the Gulf have been reluctant to cede any kind of control to outsiders; the Parallel Market aims to change that by offering lighter listing rules and disclosure requirements compared to the main Saudi Stock Exchange.
Companies require fewer shareholders to issue stock and they do not have to list as large a proportion of their shares. Prices on the Parallel Market can swing 20 percent in either direction daily, versus a 10 percent band on the main market.
On their first day of trade, all seven Parallel Market stocks soared 20 percent.
They included restaurant and bakeries operator Raydan Co , the largest company in the group with an initial market capitalisation of 720 million riyals ($192 million) - larger than a quarter of the 176 companies on the main market.
Yazan Abdeen, head of regional capital markets at Jeddah-based SEDCO Capital, said the new market would prompt many smaller companies to reconsider listing.
"It is an alternative model of financing for such companies, and will provide many family businesses with an initial step towards governance that would ensure future sustainability."
Saudi Stock Exchange chief executive Khalid al-Hussan told Al Arabiya television as many as 100 companies had expressed interest in listing on the new market, including some from the five other countries in the Gulf Cooperation Council.
Some companies may see it as a way to raise debt with greater ease, said Farid Samji, head of asset management at Dubai-based Daman Investments.
"Publicly traded companies have the advantage of gaining greater access to debt instruments from more creditors and at lower rates, because their valuation is transparent and their financials are audited," Samji said.
Nevertheless, the new market will have to demonstrate substantial trading volumes to make it worthwhile for many issuers and investors.
On Sunday, traded volume totalled 7.6 million shares worth 256 million riyals - a far cry from the 190 million shares trading on the main market.
"The challenge is to maintain liquidity without speculators," said Mohammad al-Shammasi, chief executive of Riyadh-based Derayah Financial.
Access to the new market will be restricted to professional investors such as institutions and high net worth individuals, to avoid speculative price swings.
The main market is dominated by local retail investors, who accounted for a little over half of trading value last week. Excluding them could deprive the Parallel Market of a key source of liquidity.
Samji said he would monitor the market's performance in terms of trading volume, analyst and news coverage of listed companies, and the quality of information disclosure before deploying money into it.