What is the role of Muqassa in Tadawul?

The Securities Clearing Center Company (Muqassa) will begin its operations on Aug. 30, in tandem with the launch of the derivatives market.

Muqassa will be activated in three phases, with the first phase covering the index future contracts clearing.

Muqassa was established in May 2018 as a Saudi joint stock company as a wholly-owned subsidiary of the Saudi Stock Exchange (Tadawul) with SAR 600 million capital.

Last January, the company was licensed by the Capital Market Authority to provide securities clearing services.

It aims to develop future clearing services in the Saudi capital market, in accordance with the international risk management standards.

Clearing is a post trade activity that includes determination of the obligations of each party prior to settlement, which in turn reduces the risk of counterparty default.

During the clearing process, Muqassa acts as a legal counterparty to each participant, providing a guarantee to honor the terms of the original transaction, even if one of the parties defaults before the fulfillment of their obligation.

In addition, Muqassa facilitates multilateral netting, which reduces the number of settlements in the market; providing major operational benefits for the market and participants.

Muqassa aims to support the growth of the Saudi capital market through improving the post-trade infrastructure, contribute to limit counterparty risks, enhance the operational efficiency while expanding in adding new services and products, according to a statement on Tuesday.

Following accounts are used by Muqassa for trade, position, margin and collateral management.

1) Trade and Position Accounts:

Members house trade account and position account used to trade and keep related position for member`s own transactions. House Market Maker Trade and Position Account can also be opened for Members for market making activities.

2) Margin and Collateral Accounts:

Member house collateral account: Account used to keep collateral against the margin requirement calculated for member`s own positions at House -Trade and Position Accounts.

Client collateral accounts: Two types of client collateral accounts are offered:

Individual client collateral account: Account that is used to keep collateral of an individual client. The collateral at this account shall only be used to cover the margin requirement calculated for the positions of the client. This account could be opened upon the request of the member.

Omnibus client collateral account: Account that is used to keep collateral of multiple clients. The collateral at this account shall only be used to cover the margin requirement calculated for the positions of the same group of clients. This is the standard account opened for each member.

3) Give Up/Take Up:

Give-up is the transfer of a trade or multiple trades from one clearing Member to another clearing member. Take-up is the acceptance of transfer of trades as part of a give-up transfer. Take-up is the acceptance of transfer.

4) Rectify trade:

Members can rectify any trade within the days & time restriction set by Muqassa. Rectify can include changing the account number or splitting quantity into several new trades.

Muqassa calculates daily variation margin for all open positions. Calculation takes place at the end of every business day using the Daily Settlement Price or Final Settlement Price, determined by the Exchange.

Variation margin settlement is conducted on a daily basis through the collateral accounts, i.e. variation margin is either debited or credited to the collateral accounts directly.

5) Collateral

Muqassa is accepting riyal-denominated cash as collateral. Collateral should be transferred by the Member to Muqassa`s account at the central bank (SAMA).

Member can withdraw collateral within the timeframes specified. Internal collateral transfer between Member accounts at Muqassa is possible. 

Muqassa invests collateral in accordance with the investment policy. Certain portion of the interest received is deposited to member collateral accounts based on the entitlement.