Saudi Stock Exchange proposes SBL and short selling rule changes
10 February 2020 Riyadh
Image: Shutterstock
The Saudi Stock Exchange (Tadawul) and the Securities Depository Center (Edaa) have published amended drafts of the country’s securities lending and short selling regulations for industry consultation.
The changes would impose stricter short selling rules on the market along with amendments to collateral rules and eligible participants for securities lending transactions.
The proposed rule changes are aimed at bringing Saudi Arabia’s regulatory environment more in line with international best practices and stimulate a “motivating and competitive atmosphere with high reliability," the exchange says.
For securities lending, the edits include refining the terms of when such a transaction can be entered into and who is considered an eligible participant in the market.
The legal definition would be expanded to include, “natural persons allowed to open an investment account in the kingdom and an account at the depositary centre”.
Changes would also be made to the collateral rules.
According to the Tadawul, where there has been a failure to return the collateral provided against borrowed securities in accordance with the terms of the transaction agreement, the custody member entered into securities lending transaction must notify the depository centre which will terminate the transaction in accordance with its mechanism and the controls.
The proposals also refine the framework around returning borrowed assets to include the return leg of collateral.
Elsewhere, the amendments to Saudi short selling rules would remove the exemption of short selling from Tadawul’s investment limits and impose several new limits on eligible listed securities.
The new limits include a short ratio to the average daily traded volume of the relevant security of the previous 60 days, which must not exceed 10 days.
Additionally, total net short positions must not exceed 10 percent of the free-floated securities of the relevant security.
The exchange clarifies that listed securities breaching these limits are not permitted for short selling in the next trading day.
Other edits would add a similar expansion of eligible participants to that seen in the securities lending rules.
Industry participants are now able to submit feedback on the amendments until 23 February.
The changes would impose stricter short selling rules on the market along with amendments to collateral rules and eligible participants for securities lending transactions.
The proposed rule changes are aimed at bringing Saudi Arabia’s regulatory environment more in line with international best practices and stimulate a “motivating and competitive atmosphere with high reliability," the exchange says.
For securities lending, the edits include refining the terms of when such a transaction can be entered into and who is considered an eligible participant in the market.
The legal definition would be expanded to include, “natural persons allowed to open an investment account in the kingdom and an account at the depositary centre”.
Changes would also be made to the collateral rules.
According to the Tadawul, where there has been a failure to return the collateral provided against borrowed securities in accordance with the terms of the transaction agreement, the custody member entered into securities lending transaction must notify the depository centre which will terminate the transaction in accordance with its mechanism and the controls.
The proposals also refine the framework around returning borrowed assets to include the return leg of collateral.
Elsewhere, the amendments to Saudi short selling rules would remove the exemption of short selling from Tadawul’s investment limits and impose several new limits on eligible listed securities.
The new limits include a short ratio to the average daily traded volume of the relevant security of the previous 60 days, which must not exceed 10 days.
Additionally, total net short positions must not exceed 10 percent of the free-floated securities of the relevant security.
The exchange clarifies that listed securities breaching these limits are not permitted for short selling in the next trading day.
Other edits would add a similar expansion of eligible participants to that seen in the securities lending rules.
Industry participants are now able to submit feedback on the amendments until 23 February.
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