Saudi Arabia kicks off securities lending
24 April 2017 Riyadh
Image: Shutterstock
The exchange previously operated on a T+0 cycle but slowed its system in order to better align itself with other markets.
Securities lending, along with the potential for short selling that it will enable, will now be allowed in accordance with internationally established rules. Banks and investment funds can act as agents and brokers for borrowers and lenders if they are custody members of the exchange.
The Saudi Stock Exchange has borrowed heavily from existing rules laid out by exchanges with developed lending markets, with a few exceptions, including only allowing borrowed securities to be re-lent once.
The onus for complying with this limit is on the lender, who must inform the borrower when a security hits this buffer.
All securities borrowing and lending or short selling transactions must be recorded internally by all counterparties in compliance with the country’s Capital Market Law, and may be called upon to report this information to the exchange.
Collateral provided for all transactions must be 100 percent equal in value to the borrowed security, not including relevant margins. The exchange also retains the right to disclose any information about short selling transactions and related positions.
The incorporation of securities lending and short selling comes as a part of an extensive overhaul of the Saudi Stock Exchange’s framework in a drive to encourage foreign investment into the country.
The initiative began in June 2015 with the approval of regulatory amendments to allow qualified foreign financial institutions to invest directly in Saudi Arabia-listed shares.
Securities lending, along with the potential for short selling that it will enable, will now be allowed in accordance with internationally established rules. Banks and investment funds can act as agents and brokers for borrowers and lenders if they are custody members of the exchange.
The Saudi Stock Exchange has borrowed heavily from existing rules laid out by exchanges with developed lending markets, with a few exceptions, including only allowing borrowed securities to be re-lent once.
The onus for complying with this limit is on the lender, who must inform the borrower when a security hits this buffer.
All securities borrowing and lending or short selling transactions must be recorded internally by all counterparties in compliance with the country’s Capital Market Law, and may be called upon to report this information to the exchange.
Collateral provided for all transactions must be 100 percent equal in value to the borrowed security, not including relevant margins. The exchange also retains the right to disclose any information about short selling transactions and related positions.
The incorporation of securities lending and short selling comes as a part of an extensive overhaul of the Saudi Stock Exchange’s framework in a drive to encourage foreign investment into the country.
The initiative began in June 2015 with the approval of regulatory amendments to allow qualified foreign financial institutions to invest directly in Saudi Arabia-listed shares.
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