The Capital Market Authority (CMA) called upon relevant and interested persons participating in the capital market to share their feedback on the Draft Regulatory Framework for Close-Out Netting for Capital Market Institutions. The consultation period will last for a period of 30 calendar days ending on 26/09/1446H corresponding to 26/03/2025.
The primary objective of this draft is to enhance the stability of the financial system and protect investors by ensuring the enforceability of qualified financial contract involving a capital market institution in the event of default by either party. This framework is designed to safeguard the rights of all parties involved, in accordance with the provisions outlined in the netting agreement between them.
The proposed draft outlines measures for handling the default of a party to a netting agreement or specific cases listed in the proposed framework, provided that one of the parties involved is a capital market institution. The aim is to regulate these agreements and related financial collateral arrangements linked to one or more qualified financial contract that fall under the regulatory oversight of the CMA. This ensures the enforceability of such agreements for all parties, even in the event of any changes to the conditions under which the qualified financial contract was originally executed. Ultimately, this contributes to strengthening the stability and sustainability of the financial sector in Saudi Arabia and enhancing the overall capital market framework.
The proposed draft includes several provisions governing close-out netting and associated collateral arrangements, along with definitions of key terms outlined in the draft. It also sets out financial collateral arrangements, specifies the scope of application, identifies the entities subject to the regulation, and defines qualified financial contract and transactions that would be exempt from the provisions of the Bankruptcy Law, among other proposed provisions.
The CMA also seeks, through the proposed draft, to keep pace with international developments in accordance with the best global practices, especially in light of the interest of the International Swaps and Derivatives Association (ISDA), which has issued many guidelines and models to enhance Close-Out Netting practices and legislation in different countries, to confirm the enforceability of qualified financial contract, and not to be affected by any subsequent change in the status in which they were concluded, which may include the opening of any bankruptcy procedures, and to ensure the implementation of the provisions and terms contained in those contracts.
The CMA emphasized that the comments of relevant and interested persons shall be taken into full consideration for the purpose of finalizing the Draft. Opinions and comments can be received through any of the following:
