Saudi Arabia’s new capital markets infrastructure
Saudi Arabia has demonstrated enormous resolve by opening up to foreign investors. Having once been inaccessible, the country has created an excellent framework to facilitate inward investment, reports Deutsche Bank’s Manoj Aidasani
S
even years ago, the ability to trade Saudi Arabian securities was still only accessible to international
investors indirectly via swap arrangements and mutual funds. Saudi Arabia also lacked an independent custody model – meaning assets were often held at local brokers, exposing institutions to potential counterparty risk. In addition, the market operated on a T+0
settlement cycle (the same day the trade is made), so trades had to be pre-funded. Fast forward to 2022 and the market is unrecognisable from what it once was. A series of liberalising measures introduced by the Capital Market Authority (CMA) from 2015 onwards has enabled qualified foreign investors (QFIs) to freely trade
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listed securities, with certain conditions. These post-trade reforms, most notably the adoption of T+2 and establishment of an independent custody model, have eliminated many of the risks that previously discouraged global investors from participating in the local market.
Market liberalisation yields positive results Over the years, the CMA has simplified access channels to Saudi Arabia for foreign institutions by entrusting the QFI approval process to custodians, or so-called Authorised Assessing Persons (AAPs), expediting the entire procedure. Elsewhere, the regulator established a functioning derivatives industry so investors can properly hedge their market
exposures. Beyond derivatives, the CMA has launched other investment tools, including securities lending, securities borrowing and short-selling – all welcomed by foreign investors. Saudi Arabia has further enhanced its market infrastructure with the creation of four new subsidiaries:
• Saudi Exchange – Saudi Arabia’s dedicated stock exchange
• Muqassa – a domestic central counterparty (CCP)
• Edaa – Saudi Arabia’s Securities Depository Center Company, a Central Securities Depository (CSD)
• Wamid – a technology and data- focused solution for the market
Photography: istockphoto
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