Saudi Arabia embraces the securities lending market and Tri-party
22 April 2025
J.P. Morgan’s Trading Services sees growing opportunities for its Agency Securities Finance and Tri-party businesses. With Saudi opening its doors to global investors, the potential for innovation brings clients a chance to stand at the forefront of a financial revolution, according to Marcus Rudler and Michele Filippini
Image: stock.adobe.com/Hairem
The transformation of financial markets in the Middle East is capturing global attention, with Saudi Arabia emerging as a pivotal player by positioning itself as a global investment hub. Saudi Vision 2030 underscores the Kingdom's commitment to economic diversification, moving beyond its historical reliance on oil to embrace sectors like tourism, technology, and entertainment, while also enhancing public services and infrastructure.
The Kingdom's strategic initiatives to modernise its markets and attract foreign investors have laid a solid foundation for a robust securities borrowing and lending (SBL) framework, and an environment conducive to Tri-party collateral management services. Investors are poised to reap the benefits of a market ripe for innovation and growth.
The emerging securities lending market in Saudi Arabia matures
Agency Securities Finance (ASF) in Saudi Arabia represents a significant growth opportunity, complementing the Kingdom’s development of their capital markets.
ASF is key to supporting the development and liquidity across the market to further enhance other financial products such as short selling, derivatives, hedging, and market making. The market’s allure is further enhanced by the diverse array of liquid, data-rich securities available, appealing to quantitative funds and systematic strategies, alongside the increasing number of IPOs across various sectors, offering significant trading opportunities.
In recent decades, Saudi Arabia has implemented significant regulatory reforms. These reforms have developed the market, leading to Saudi Arabia’s inclusion in the MSCI and FTSE global indices. These advancements have aligned Saudi practices to international standards, with ASF playing a crucial role in enhancing market efficiency and liquidity, while also boosting foreign investor confidence — key elements for a mature and resilient market.
The successful overcoming of regulatory challenges and infrastructure improvements has paved the way for increased client participation, offering the ability to replicate global strategies and access a broader tradable universe.
Building on these developments, 2024 witnessed a surge of hedge funds establishing operations in the Gulf Cooperation Council (GCC) region, increasing demand for liquidity across the different markets. From an ASF perspective, there is growing demand for broad supply and an expanded tradable universe of accessible equities and bonds.
Clients benefit from the increased liquidity and transparency, enabling them to optimise their portfolios and achieve specific risk or return objectives. As Saudi Arabia's presence in global indices expands, enhancing market liquidity becomes a crucial component of this growth — this increased liquidity enables quantitative funds and systematic strategies to scale effectively.
However, agent lenders face practical challenges and barriers to entry when establishing a presence. Regulatory complexities, operational hurdles, local custody branch management, and the need to adapt established international models to regional settlement cycles and market norms, present significant difficulties — building relationships with Saudi asset owners requires a long-term approach.
J.P. Morgan has turned these challenges into opportunities, leveraging its local expertise and building strong relationships with key stakeholders to allow clients to unlock additional returns through agency lending.
Further, J.P. Morgan has conducted workshops and seminars to improve understanding among local asset owners, fostering a more informed and engaged market environment.
Once these obstacles are overcome, asset owners can unlock additional returns through ASF at institutions like J.P. Morgan, where the team helps institutional investors to meet specific risk and return requirements through efficient and customisable lending solutions. In a year where securities lending revenues face pressure due to a long bias across EMEA, Saudi Arabia stands out as a beacon of incremental income and opportunity.
Saudi Arabia is swiftly developing its market infrastructure, in turn facilitating a robust capital market structure that will soon evolve into a highly developed ecosystem.
Supported by strong regulatory backing and infrastructure enhancements, Saudi Arabia has introduced best practices, expanded participant numbers, and greater transparency.
The rise in institutional participation and surging demand from global funds underscore the potential for significant yields. Another key development within the ecosystem will be the enhanced opportunities around the financing of Saudi assets, which will come through development within collateral management, specifically within the traditional offshore Tri-party construct, as market participants’ demand to finance Saudi assets grows.
The rise in institutional participation, surging demand from global funds, and the integration of securities lending into market reforms signal a shift towards greater market maturity, with a promising trajectory. For those already engaged, the rewards are significant.
Given the continued growth and development across the GCC region, J.P. Morgan ASF continues to partner with exchanges and regulators to develop robust capital markets, with securities lending being a key part of this. We have already observed Edaa, the Saudi Securities Depository Center Company, waive trading fees on listed ETFs to enhance liquidity and market efficiency, alongside Saudi Arabia's commitment to sustainable development and an ESG-conscious approach through Vision 2030.
The expansion of the Tri-party business
Beyond ASF, Saudi Arabia is also a key market for our Tri-party collateral management business. In fact, synergies between the ASF and Tri-party markets have always existed; since the first securities lending trade in the Saudi market in 2021, providing a Tri-party collateral management solution has been crucial for supporting further growth in lending by international and local banks.
J.P. Morgan’s proposed Tri-party solution seeks to create a robust and scalable Tri-party framework that harmonises with global markets, in addition to meeting local regulatory requirements.
It is, of course, important for securities services providers to evolve to meet client requirements and market demands. By leveraging an extensive network, technological capabilities, and industry expertise, they can help clients optimise collateral and manage risk effectively.
J.P. Morgan utilises support from its local entity, J.P. Morgan Saudi Arabia (JPMSA), to assist clients in investing in international assets and has established a strong local presence with relationship management, client services, and sales on the ground.
Since 2018, JPMSA's Direct Custody Product has supported Saudi Arabian and GCC clients, including government entities, investment firms, and banks. In 2024, J.P. Morgan launched securities lending for Saudi Arabian equities.
In addition, J.P. Morgan’s proposed Tri-party collateral management solution for Saudi Arabian collateral will extend J.P. Morgan Tri-party’s overall market coverage to 34 global markets, while managing more than US$1 trillion in assets.
This expansion provides clients with unparalleled access to a broader range of investment opportunities and enhances their ability to manage collateral across multiple jurisdictions.
J.P. Morgan's Collateral Central application empowers clients to enhance operational efficiency and increase secondary liquidity through optimising their collateral pool, offering a competitive edge in the market.
In pairing global approach with local know-how, J.P. Morgan is seeking to leverage the expertise of its Riyadh office to navigate the Saudi Arabian market, understand licensing requirements for JPMSA, and apply the Tri-party model to the safekeeping and margining of Saudi equity and fixed income securities collateral.
Complementing the securities lending and repo markets, J.P. Morgan’s proposed Tri-party solution aims to unite local asset owners with global securities finance participants, facilitating the financing of inventory from Sukuk Bonds to MSCI Saudi IMI listed equity in a single venue. The integration offers clients a seamless experience and the opportunity to capitalise on a wide range of investment options.
Towards an exciting future
The enthusiasm among clients and attendees at the 2025 Securities Finance Symposium: Saudi Arabia, underscores the Kingdom’s immense potential as an ASF and collateral market, marking the beginning of an exciting future for business in the region.
As Saudi Arabian collateral is integrated into international clients’ existing Tri-party inventory pools, and securities lending is facilitated through J.P. Morgan’s Agency Securities Finance business, there is anticipation of expansion into other GCC markets and the welcoming of new clients into the programme.
The next steps in the Middle East journey are expected to bring further integration and growth. J.P. Morgan is committed to leading this journey, providing the expertise and resources needed to succeed in the evolving Middle Eastern market, and ensuring that clients are well-positioned to capitalise on the exciting opportunities ahead.
The Kingdom's strategic initiatives to modernise its markets and attract foreign investors have laid a solid foundation for a robust securities borrowing and lending (SBL) framework, and an environment conducive to Tri-party collateral management services. Investors are poised to reap the benefits of a market ripe for innovation and growth.
The emerging securities lending market in Saudi Arabia matures
Agency Securities Finance (ASF) in Saudi Arabia represents a significant growth opportunity, complementing the Kingdom’s development of their capital markets.
ASF is key to supporting the development and liquidity across the market to further enhance other financial products such as short selling, derivatives, hedging, and market making. The market’s allure is further enhanced by the diverse array of liquid, data-rich securities available, appealing to quantitative funds and systematic strategies, alongside the increasing number of IPOs across various sectors, offering significant trading opportunities.
In recent decades, Saudi Arabia has implemented significant regulatory reforms. These reforms have developed the market, leading to Saudi Arabia’s inclusion in the MSCI and FTSE global indices. These advancements have aligned Saudi practices to international standards, with ASF playing a crucial role in enhancing market efficiency and liquidity, while also boosting foreign investor confidence — key elements for a mature and resilient market.
The successful overcoming of regulatory challenges and infrastructure improvements has paved the way for increased client participation, offering the ability to replicate global strategies and access a broader tradable universe.
Building on these developments, 2024 witnessed a surge of hedge funds establishing operations in the Gulf Cooperation Council (GCC) region, increasing demand for liquidity across the different markets. From an ASF perspective, there is growing demand for broad supply and an expanded tradable universe of accessible equities and bonds.
Clients benefit from the increased liquidity and transparency, enabling them to optimise their portfolios and achieve specific risk or return objectives. As Saudi Arabia's presence in global indices expands, enhancing market liquidity becomes a crucial component of this growth — this increased liquidity enables quantitative funds and systematic strategies to scale effectively.
However, agent lenders face practical challenges and barriers to entry when establishing a presence. Regulatory complexities, operational hurdles, local custody branch management, and the need to adapt established international models to regional settlement cycles and market norms, present significant difficulties — building relationships with Saudi asset owners requires a long-term approach.
J.P. Morgan has turned these challenges into opportunities, leveraging its local expertise and building strong relationships with key stakeholders to allow clients to unlock additional returns through agency lending.
Further, J.P. Morgan has conducted workshops and seminars to improve understanding among local asset owners, fostering a more informed and engaged market environment.
Once these obstacles are overcome, asset owners can unlock additional returns through ASF at institutions like J.P. Morgan, where the team helps institutional investors to meet specific risk and return requirements through efficient and customisable lending solutions. In a year where securities lending revenues face pressure due to a long bias across EMEA, Saudi Arabia stands out as a beacon of incremental income and opportunity.
Saudi Arabia is swiftly developing its market infrastructure, in turn facilitating a robust capital market structure that will soon evolve into a highly developed ecosystem.
Supported by strong regulatory backing and infrastructure enhancements, Saudi Arabia has introduced best practices, expanded participant numbers, and greater transparency.
The rise in institutional participation and surging demand from global funds underscore the potential for significant yields. Another key development within the ecosystem will be the enhanced opportunities around the financing of Saudi assets, which will come through development within collateral management, specifically within the traditional offshore Tri-party construct, as market participants’ demand to finance Saudi assets grows.
The rise in institutional participation, surging demand from global funds, and the integration of securities lending into market reforms signal a shift towards greater market maturity, with a promising trajectory. For those already engaged, the rewards are significant.
Given the continued growth and development across the GCC region, J.P. Morgan ASF continues to partner with exchanges and regulators to develop robust capital markets, with securities lending being a key part of this. We have already observed Edaa, the Saudi Securities Depository Center Company, waive trading fees on listed ETFs to enhance liquidity and market efficiency, alongside Saudi Arabia's commitment to sustainable development and an ESG-conscious approach through Vision 2030.
The expansion of the Tri-party business
Beyond ASF, Saudi Arabia is also a key market for our Tri-party collateral management business. In fact, synergies between the ASF and Tri-party markets have always existed; since the first securities lending trade in the Saudi market in 2021, providing a Tri-party collateral management solution has been crucial for supporting further growth in lending by international and local banks.
J.P. Morgan’s proposed Tri-party solution seeks to create a robust and scalable Tri-party framework that harmonises with global markets, in addition to meeting local regulatory requirements.
It is, of course, important for securities services providers to evolve to meet client requirements and market demands. By leveraging an extensive network, technological capabilities, and industry expertise, they can help clients optimise collateral and manage risk effectively.
J.P. Morgan utilises support from its local entity, J.P. Morgan Saudi Arabia (JPMSA), to assist clients in investing in international assets and has established a strong local presence with relationship management, client services, and sales on the ground.
Since 2018, JPMSA's Direct Custody Product has supported Saudi Arabian and GCC clients, including government entities, investment firms, and banks. In 2024, J.P. Morgan launched securities lending for Saudi Arabian equities.
In addition, J.P. Morgan’s proposed Tri-party collateral management solution for Saudi Arabian collateral will extend J.P. Morgan Tri-party’s overall market coverage to 34 global markets, while managing more than US$1 trillion in assets.
This expansion provides clients with unparalleled access to a broader range of investment opportunities and enhances their ability to manage collateral across multiple jurisdictions.
J.P. Morgan's Collateral Central application empowers clients to enhance operational efficiency and increase secondary liquidity through optimising their collateral pool, offering a competitive edge in the market.
In pairing global approach with local know-how, J.P. Morgan is seeking to leverage the expertise of its Riyadh office to navigate the Saudi Arabian market, understand licensing requirements for JPMSA, and apply the Tri-party model to the safekeeping and margining of Saudi equity and fixed income securities collateral.
Complementing the securities lending and repo markets, J.P. Morgan’s proposed Tri-party solution aims to unite local asset owners with global securities finance participants, facilitating the financing of inventory from Sukuk Bonds to MSCI Saudi IMI listed equity in a single venue. The integration offers clients a seamless experience and the opportunity to capitalise on a wide range of investment options.
Towards an exciting future
The enthusiasm among clients and attendees at the 2025 Securities Finance Symposium: Saudi Arabia, underscores the Kingdom’s immense potential as an ASF and collateral market, marking the beginning of an exciting future for business in the region.
As Saudi Arabian collateral is integrated into international clients’ existing Tri-party inventory pools, and securities lending is facilitated through J.P. Morgan’s Agency Securities Finance business, there is anticipation of expansion into other GCC markets and the welcoming of new clients into the programme.
The next steps in the Middle East journey are expected to bring further integration and growth. J.P. Morgan is committed to leading this journey, providing the expertise and resources needed to succeed in the evolving Middle Eastern market, and ensuring that clients are well-positioned to capitalise on the exciting opportunities ahead.
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