CMA seeks public input on draft close-out netting regulatory framework

Logo of Capital Market Authority (CMA)

The Capital Market Authority (CMA) called on stakeholders and interested capital market players to share their feedback on the draft Regulatory Framework for Close-Out Netting for Capital Market Institutions.

The consultation period runs for 30 days until March 26.

The primary objective of this draft bill is to enhance the stability of the capital market system and protect investors by validating the feasibility of qualified capital market contracts involving a capital market institution in the event of default by either party. It is designed to safeguard the rights of all parties involved, in accordance with the provisions outlined in their netting agreements, the market regulator said.

It outlines measures for handling the default of a party to a netting agreement or other cases specified in the proposed framework, provided that either party is a capital market institution. The aim is to regulate these agreements and related collateral arrangements linked to one or more qualified capital market contracts that fall under the regulatory oversight of the CMA.

This shall help ensure the viability of such agreements for all parties, even in the event of any changes to the conditions under which the qualified capital market contract was originally executed. Ultimately, this contributes to strengthening the stability and sustainability of the Saudi capital market while elevating its governance, it added.

The proposed framework covers several provisions governing close-out netting and associated collateral arrangements, along with the glossary of key terms outlined within. It also sets out financial collateral arrangements, specifies the scope of application, identifies liable entities, and defines qualified transactions that would be exempt from the provisions of the Bankruptcy Law, amongst other proposed provisions.

The CMA also seeks, through the draft bill, to keep pace with international developments in accordance with the best global practices, especially in light of the growing 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.

Accordingly, the viability of such agreements will be guaranteed to all parties, and their implementation will also not be impacted by any subsequent changes in the status in which they were concluded, which may include the opening of any bankruptcy procedures. This is besides ensuring the enforcement of the provisions and terms stipulated under these contracts.

The CMA emphasized that the opinions of the relevant and interested persons should be taken into full consideration for the purpose of finalizing this framework.

Opinions and comments can be received through any of the following:

-  The Unified Electronic Platform for Consulting the Public and Government Entities (Public Consultation Platform), affiliated with the National Competitiveness Canter through the following link: istitlaa.ncc.gov.sa

-   The prescribed form through the following email: Laws.Regulations@cma.org.sa 

The Draft can be viewed via the following link:

The Draft Regulatory Framework for Close-Out Netting for Capital Market Institutions