SFS: Firms call for clarity over Saudi’s operational infrastructure
01 May 2025 Saudi Arabia
Image: Mohammed/stock.adobe.com
“In terms of the market infrastructure support for securities financing transactions, things have been heading in the right direction with areas for continuous improvement,” said Cheuk-Yin Cheung, head of structured products, Middle East at Clifford Chance, at this year’s Securities Finance Symposium in Riyadh, Saudi Arabia.
The ‘Regulatory Framework and Market Structure’ panel examined the interplay between market governance and operational infrastructure that underpins the Kingdom’s securities borrowing and lending environment.
Cheung highlighted the importance of Edaa’s — the Securities Depository Center — establishment of international central securities depository links with entities such as Euroclear and Clearstream.
She believes it sets a blueprint for the opening of more Saudi securities to be readily transferable, particularly in secondary markets where they may be used as collateral assets.
The discussion highlighted that within a relatively short space of time, the investor accounts system within Edaa, as well as enabling regulations from the Capital Market Authority (CMA), has significantly changed the ecosystem for “off-exchange” transfers of Saudi securities from a starting point where permitted transfers of Saudi securities centred on “on-exchange trades” at the Tadawul, to a wider range of circumstances today covering repo transactions, securities lending and borrowing, regulated short-selling, and as collateral to support these transaction-types.
Jalal Faruki, head of custody and securities services at SNB Capital, noted that there has been “a lot of positive and significant changes”. Providing an overview, he said stock loan regulation in the country has been in effect since 2017-18, but that trade activity was not seen until the introduction of post-trade technology in 2022. Activity has “exploded” since then.
“It’s an evolution. What we saw in 2024 was a huge volume increase in activity and value of securities on loan. We went from less than 30 securities on loan in prior years to nearly 200,” he added.
However, through this development, Faruki noted that new challenges arose to continue scaling and growing the market. For example, transaction costs have been 500 riyal per trade, which creates limitations and can lead firms to create minimum trade sizes or minimum loan periods. Such transaction costs also limit the ability to do stock loans for very active borrowers and market makers.
On the asset servicing and custody side, in terms of practical challenges, a number of local custodians are not able to reflect securities on loan as part of the investment or custody account infrastructure, which causes breaks in the middle office and fund accounting, Faruki said. He continued: “I expect that this year, we’ll start seeing some of those infrastructure gaps getting resolved.”
Representing BNY, Ina Budh-Raja, global head of securities finance regulatory strategy, says the firm is in a now position to be lending on behalf of its offshore clients — “It has been a journey to be established here, we’ve appreciated the opportunity to work extensively with local partners and regulators to achieve a viable operating model and we’re delighted to go live now.”
As she welcomed the engagement with local regulators and the country’s stock exchange, she noted the importance of establishing clear best practices around how the market operates in order to generate liquidity.
Currently, one of the challenges in the market for Budh-Raja revolves around how international agents plug into the market, where there is a requirement for a local securities lending agent and further, the need for market infrastructure to evolve in enabling triparty collateral management models to operate along internationally established frameworks.
“Having the ability to use the market standard Global Master Securities Lending Agreement, adapt from there, and develop an annex around it, is very important for capability, and we welcome that as an agent,” she said.
Budh-Raja added: “We have a large programme that, over time, is eager to access the 80 per cent of Shariah holdings in the market. 80 per cent of holdings in Saudi are still trapped, so how do we unlock that inventory? It’s not straightforward, but work is being done.”
Thinking ahead, Faruki asked: “What’s important is to look at what’s the natural supply and demand, and how do we find solutions to cater to that?”
The panel also raised the subject of netting. In February 2025, the Saudi Central Bank (SAMA) issued and enforced Close-out Netting and the related Financial Collateral Arrangements Regulation.
In agreement, the panellists highlighted the importance of netting to achieve an efficient market within Saudi and clean netting opinions, which extend to coverage of the local sovereign wealth funds, will be crucial to achieving the full benefits of the new netting regulations.
Providing more information on the current situation, Faruki noted that capital market institutions, such as SNB Capital, or anyone regulated by the CMA falls under those Close-out Netting regulations.
However, he pinpointed that there is “no clear view” on investment funds domiciled in Saudi Arabia which are managed by capital market institutions, which are an important part of any securities finance ecosystem.
He suggested that this raises questions: “How can we enable a standard agency lending model where Close-out Netting applies to the underlying institutional clients and investment funds a capital market institution may provide agency lending services to?”
Concluding the panel, Budh-Raja said: “As we move forward, we've got a good starting point and the more that the market centres around global best practices, the more we will see regulatory clarity, which will ease accessibility by the international market — really enabling the market to operate at full scale to support the broader policy objectives of Saudi Vision 2030.”
The ‘Regulatory Framework and Market Structure’ panel examined the interplay between market governance and operational infrastructure that underpins the Kingdom’s securities borrowing and lending environment.
Cheung highlighted the importance of Edaa’s — the Securities Depository Center — establishment of international central securities depository links with entities such as Euroclear and Clearstream.
She believes it sets a blueprint for the opening of more Saudi securities to be readily transferable, particularly in secondary markets where they may be used as collateral assets.
The discussion highlighted that within a relatively short space of time, the investor accounts system within Edaa, as well as enabling regulations from the Capital Market Authority (CMA), has significantly changed the ecosystem for “off-exchange” transfers of Saudi securities from a starting point where permitted transfers of Saudi securities centred on “on-exchange trades” at the Tadawul, to a wider range of circumstances today covering repo transactions, securities lending and borrowing, regulated short-selling, and as collateral to support these transaction-types.
Jalal Faruki, head of custody and securities services at SNB Capital, noted that there has been “a lot of positive and significant changes”. Providing an overview, he said stock loan regulation in the country has been in effect since 2017-18, but that trade activity was not seen until the introduction of post-trade technology in 2022. Activity has “exploded” since then.
“It’s an evolution. What we saw in 2024 was a huge volume increase in activity and value of securities on loan. We went from less than 30 securities on loan in prior years to nearly 200,” he added.
However, through this development, Faruki noted that new challenges arose to continue scaling and growing the market. For example, transaction costs have been 500 riyal per trade, which creates limitations and can lead firms to create minimum trade sizes or minimum loan periods. Such transaction costs also limit the ability to do stock loans for very active borrowers and market makers.
On the asset servicing and custody side, in terms of practical challenges, a number of local custodians are not able to reflect securities on loan as part of the investment or custody account infrastructure, which causes breaks in the middle office and fund accounting, Faruki said. He continued: “I expect that this year, we’ll start seeing some of those infrastructure gaps getting resolved.”
Representing BNY, Ina Budh-Raja, global head of securities finance regulatory strategy, says the firm is in a now position to be lending on behalf of its offshore clients — “It has been a journey to be established here, we’ve appreciated the opportunity to work extensively with local partners and regulators to achieve a viable operating model and we’re delighted to go live now.”
As she welcomed the engagement with local regulators and the country’s stock exchange, she noted the importance of establishing clear best practices around how the market operates in order to generate liquidity.
Currently, one of the challenges in the market for Budh-Raja revolves around how international agents plug into the market, where there is a requirement for a local securities lending agent and further, the need for market infrastructure to evolve in enabling triparty collateral management models to operate along internationally established frameworks.
“Having the ability to use the market standard Global Master Securities Lending Agreement, adapt from there, and develop an annex around it, is very important for capability, and we welcome that as an agent,” she said.
Budh-Raja added: “We have a large programme that, over time, is eager to access the 80 per cent of Shariah holdings in the market. 80 per cent of holdings in Saudi are still trapped, so how do we unlock that inventory? It’s not straightforward, but work is being done.”
Thinking ahead, Faruki asked: “What’s important is to look at what’s the natural supply and demand, and how do we find solutions to cater to that?”
The panel also raised the subject of netting. In February 2025, the Saudi Central Bank (SAMA) issued and enforced Close-out Netting and the related Financial Collateral Arrangements Regulation.
In agreement, the panellists highlighted the importance of netting to achieve an efficient market within Saudi and clean netting opinions, which extend to coverage of the local sovereign wealth funds, will be crucial to achieving the full benefits of the new netting regulations.
Providing more information on the current situation, Faruki noted that capital market institutions, such as SNB Capital, or anyone regulated by the CMA falls under those Close-out Netting regulations.
However, he pinpointed that there is “no clear view” on investment funds domiciled in Saudi Arabia which are managed by capital market institutions, which are an important part of any securities finance ecosystem.
He suggested that this raises questions: “How can we enable a standard agency lending model where Close-out Netting applies to the underlying institutional clients and investment funds a capital market institution may provide agency lending services to?”
Concluding the panel, Budh-Raja said: “As we move forward, we've got a good starting point and the more that the market centres around global best practices, the more we will see regulatory clarity, which will ease accessibility by the international market — really enabling the market to operate at full scale to support the broader policy objectives of Saudi Vision 2030.”
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