Marketable Securities for Saudi SMEs: Types, Trading, and Liquidity

Excerpt

Marketable securities are highly liquid financial instruments that Saudi businesses can quickly convert to cash, optimizing financial flexibility and short-term asset management in the Kingdom. These instruments, classified as Current Assets, are crucial for maintaining liquidity ratios and ensuring compliance with financial regulations.

All companies, financial institutions, and professionals are keen to understand What are marketable securities?, their types, trading significance, and impact. As the business environment rapidly changes, financial liquidity is a core element that enables companies to efficiently meet obligations and seize growth opportunities. One of the key tools companies utilize to ensure liquidity is what is known as Marketable Securities.

In this article, we delve into What are marketable securities? What does this term mean? And why do these instruments hold a special place in accounting and financial reporting, particularly for small/medium-sized businesses in Saudi Arabia? We will link these concepts to the operational efficiency enabled by solutions like Qoyod Accounting Software .

What Are Marketable Securities?

Simply put, marketable securities are financial instruments that a company or institution can quickly convert into cash, usually without significantly impacting their price. This means the buying or selling process does not lead to a noticeable change in their market value.

• They typically have a short maturity period, usually less than one year, classifying them as part of Current Assets on the financial statements (Balance Sheet).

Why Are These Securities Crucial in Accounting?

Marketable securities are vital for several reasons, especially in the context of Saudi businesses managing working capital and compliance (e.g., Zakat Authority regulations):

• Financial Flexibility: Instead of holding surplus cash in low-yield bank accounts, companies can invest this cash in highly liquid securities,such as stocks or short-term debt instruments to improve returns while maintaining the ability to act fast if an urgent need arises.
• Liquidity Reflection: Including these securities in Current Assets on the Balance Sheet reflects the company’s ability to meet short-term obligations. This is a crucial indicator monitored by creditors and investors when analyzing a company’s financial health.
• Ratio Analysis: The concept plays a central role in analyzing liquidity ratios. A considerable share of assets held as marketable securities boosts the cash ratio or quick ratio, metrics showing the company’s ability to settle liabilities without resorting to selling inventory or fixed assets.

Significance of Marketable Securities in Saudi Arabia’s Economy and Investment

Before detailing What are marketable securities?, it’s important to recognize that they are among the most critical tools driving the modern economy. They act as the link between savers with financial surpluses and investors who need funding for their projects.

In the Kingdom of Saudi Arabia, the securities market represented by Tadawul Saudi Exchange and supervised by the Capital Market Authority (CMA)is a primary hub for supporting economic development. It provides a regulated and transparent environment for trading stocks, bonds, and debt instruments, strengthening the confidence of local and foreign investors alike.

• Boosting Liquidity: Securities play a fundamental role in enhancing financial liquidity within the economy. They allow individuals and institutions to easily convert their investments into cash without disrupting economic activity.
• Capital Circulation: Every purchase or sale within the market contributes to injecting new liquidity, maintaining the circulation of capital in the national economy.

Marketable Securities Definition and Types

Marketable Securities are short-term investments that can be readily bought or sold in financial markets, converting into cash typically within one year. They are classified as Current Assets on the Balance Sheet and are utilized to increase the return on surplus cash without sacrificing liquidity.

Key Difference: Marketable vs. Non-Marketable Securities

The fundamental difference lies in liquidity and ease of conversion into cash:

Feature	Marketable Securities	Non-Marketable Securities
Liquidity	Highly liquid; can be sold quickly at a price close to fair value (e.g., listed stocks on Tadawul).	Low liquidity; difficult to sell due to the absence of a regulated market or specific restrictions.
Example	Listed stocks, Treasury Bills, Short-Term Government Bonds.	Long-term investments, bonds held to maturity, private placement debt.
Classification	Current Assets	Non-Current Assets (Long-Term Investments)

1. Stocks

Stocks represent an ownership share in a company, granting the holder rights like voting in general assemblies and receiving dividends.

• Types of Stocks:

• Common Stock: Grants voting rights and a share of profits.
• Preferred Stock: Typically no voting rights, but offers priority in dividend distribution and capital return.

• Characteristics in Saudi Arabia: Easily tradable via the Saudi Stock Exchange (Tadawul) and subject to the CMA’s disclosure and transparency rules.

2. Bonds and Sukuk 

Bonds represent a financial commitment by the issuer (company or government) to repay a specified amount to the bondholder on a specific date, along with periodic interest payments.

• Types:

• Government Bonds: Issued by the state, considered lower risk.
• Corporate Bonds: Issued by companies for financing.
• Islamic Sukuk: Sharia-compliant financial instruments based on real assets.

• In the Kingdom, the CMA oversees the issuance and trading of Sukuk and bonds under clear regulatory frameworks that ensure fairness and transparency.

3. Money Market Instruments

These include Certificates of Deposit (CDs), commercial paper, and Treasury Bills. They are short-term papers used by institutions to meet quick financing needs or manage temporary liquidity.

• These instruments are a preferred choice for banks and corporations in Jeddah and Riyadh due to their high safety and rapid liquidity.

Learn More: What are money companies and their types?

Marketable Securities Trading Mechanisms in Saudi Arabia

The Role of Saudi Exchanges in Regulating Trading

Tadawul Saudi Exchange is the sole licensed entity in the Kingdom to operate the stock market. It works under the supervision of the Capital Market Authority (CMA) to ensure fairness and efficiency.

• Organized Markets: In regulated markets like Tadawul, buying and selling operations adhere to clear rules ensuring transparency and investor protection. All transactions are digitally recorded and monitored by a central trading system under CMA oversight.
• Seamless Transactions: Through an advanced trading system, transactions are executed in seconds, and every trade is instantly documented via a secure electronic platform.

This transparent process provides an advanced financial environment that supports economic growth and encourages local and foreign investment, aligning with Saudi Vision 2030‘s goal of making the Saudi financial market a leading regional and global financial center.

 Connection Between Marketable Securities and Financial Asset Management

Marketable Securities are a pillar of financial asset management within any company. They are not acquired just for holding but are managed within a comprehensive strategy that balances return, risk, and liquidity.

• Accounting Role: In accounting, managing these securities is part of the Current Asset management process, where the company tracks the performance of its short-term investments and periodically rebalances them to achieve the best use of capital.
• Asset Management Role: They are treated as part of a diversified portfolio, including stocks, bonds, Sukuk, and money market instruments.

The key relationship is that accurate accounting provides the precise data and analyses that enable financial managers to make informed investment decisions, while asset management translates that data into actual investment strategies seeking higher returns without compromising liquidity or financial security.

Role of Technology and Accounting Systems (Like Qoyod)

With technological advancements, tracking marketable securities is no longer done through traditional ledgers or spreadsheets. Today, Saudi companies rely on smart accounting systems like Qoyod Accounting Software, which provides integrated solutions for real-time asset and investment tracking.

Through systems like Qoyod, accountants or financial managers in Dammam and Khobar can:

• Automatically record investment entries upon buying or selling securities.
• Monitor and update market values according to Tadawul data.
• Prepare instant financial reports showing realized and unrealized gains and losses.
• Accurately monitor liquidity to understand the impact of trading on cash flows.

This integration of Cloud Accounting and smart financial analysis allows companies to make quicker, more accurate decisions. Instead of waiting for month-end reviews, investment performance can be evaluated daily even moment-to-moment thanks to accredited digital systems like Qoyod.

For more on: Qoyod‘s Electronic Invoicing Program

Real-World Case Studies from the Saudi Financial Market

In the Saudi Market, experience shows that companies managing their marketable securities within a clear accounting strategy achieve greater financial stability than those that handle them haphazardly. This is especially vital for businesses seeking to maintain high liquidity for Zakat and operational needs.

For example:

• Large Industrial Firms: Often hold a portion of their liquidity in Treasury Bills or Government Sukuk, as these are highly marketable securities and simultaneously secure.
• Real Estate Investment Companies (in Jeddah/Riyadh): May invest in publicly traded Real Estate Investment Trusts (REITs) to increase short-term returns without freezing capital.
• Fintech and Finance Companies: Benefit from financial derivatives to hedge against fluctuations in interest rates or stock prices, managing risk effectively.

All these practices underscore the importance of understanding What are marketable securities? and how their management has become an integral part of smart financial planning in the Saudi market environment. This process is fully supported by the Capital Market Authority (CMA) and the Saudi Exchange (Tadawul) under continuously updated and transparent regulatory frameworks.

Risks Associated with Marketable Securities

Despite the flexibility and returns these instruments offer, they are not without risks, which companies and investors must manage carefully.

1. Market and Volatility Risks

Market risk is the primary challenge, as the value of stocks or bonds can decline due to economic changes, political events, or fluctuations in interest rates.

• The CMA in Saudi Arabia enhances market stability through detailed disclosure systems and continuous monitoring of trading movements to curb illicit speculation.
• Strategy: It remains essential to diversify the investment portfolio and avoid relying on a single class of securities.

2. Credit and Liquidity Risks

• Credit Risk (Bonds): The risk that the issuer may be unable to repay the debt on time. Assessing the issuer’s creditworthiness before purchase is vital.
• Liquidity Risk: Occurs when an investor cannot sell the security quickly enough without a significant price loss. This risk is higher in less active markets or during economic downturns.

Strategies for Risk Mitigation

Companies can mitigate these risks by:

• Diversifying the investment portfolio across stocks, bonds, and money market instruments.
• Setting clear investment limits in the company’s financial policy.
• Utilizing advanced accounting systems like Qoyod to monitor performance and analyze deviations immediately.

By adopting these practices, understanding What are marketable securities? becomes not just a set of terms and figures on the financial statements, but a smart toolkit for managing liquidity, driving growth, and ensuring long-term financial sustainability.

Saudi Regulations Governing Marketable Securities

The Saudi financial market boasts one of the most developed regulatory environments in the region. Several entities work to organize and monitor all aspects of marketable securities.

• Capital Market Authority (CMA): Primarily responsible for market oversight, ensuring transparency, and protecting investors.
• Tadawul Saudi Exchange: The official platform for executing trades and disclosing financial data.

The core laws governing the market include the Saudi Capital Market Law and the regulations for offering securities, listing rules, and disclosure. These systems mandate that listed companies regularly disclose their financial results and set precise conditions for trading stocks and bonds to ensure fair access to information and the integrity of financial operations.

Tips for Investing in Marketable Securities in Saudi Arabia

Entering the world of securities requires a blend of accounting knowledge, financial acumen, and an understanding of What are marketable securities? and related concepts.

1. Learn to Read Financial Statements: Before investing, study the financial statements (Income Statement, Balance Sheet, Cash Flow Statement) to get a clear picture of the company’s performance and profitability.
2. Diversify Your Portfolio: Do not put all your money into one stock or sector. Diversification across stocks, bonds, and money market instruments reduces risk and increases long-term stability.
3. Use Accounting Tools and Asset Management Software: Systems like Qoyod help accurately track profits and losses and evaluate investment performance, enabling decisions based on actual data rather than intuition or speculation.
4. Follow Official News and Reports: Markets change quickly. Always monitor announcements from the CMA and Tadawul Saudi Exchange to understand new trends or regulatory changes.

The successful investment journey depends not only on choosing the right security but also on the analysis, planning, and precise monitoring of every financial step—factors greatly enhanced by relying on modern accounting systems.

Conclusion

Marketable Securities are the fundamental pillar upon which the movement of capital in the modern economy rests. They drive investments, grow companies, and build trust among market participants. However, this growth is only achieved through the integration of accounting, technical, and regulatory aspects in managing portfolios and investments.

This is where the role of smart accounting software like Qoyod emerges, enabling investors to monitor trades, accurately calculate profits, and manage their assets in a secure, integrated digital environment, fully compliant with Saudi regulations like the e-invoicing system.

Try Qoyod Accounting Software now to make your business operations easier and more accurate with solutions designed for Saudi companies.

FAQ Section on Marketable Securities

External Sources and References

• Capital Market Authority (CMA) Official Website
• Zakat, Tax and Customs Authority (ZATCA)
• Saudi Exchange (Tadawul)
• Saudi Vision 2030 (Financial Sector)