The International Swaps and Derivatives Association (ISDA) endorsed the Close-out Netting and related Collateral Arrangements Regulation adopted by the Capital Market Authority (CMA), which came into effect in July 2025, confirming its alignment with international standards.
According to a statement published by ISDA's official website, the Regulation adopted by the CMA has been included within the scope of ISDA's legal opinions consistent with international derivatives agreements. This signifies that the Kingdom of Saudi Arabia has become a jurisdiction supporting international netting legislation, thereby strengthening the enforceability of such contracts at the international level.
Mr. Raed Ibrahim Alhumaid, CMA Deputy of Market Institutions, explained that the Regulation approved by the CMA about four months ago was designed to regulate netting agreements and related financial collateral arrangements in which one of the parties is a Capital Market Institution. The Regulation aims to enhance the stability of the financial system and protect investors, thereby contributing to the growth of investments in the capital market, including the derivatives market.
Alhumaid noted that the Regulation was approved and implemented to ensure the enforceability of eligible financial contracts and their protection from any subsequent changes to the circumstances under which they were executed, including the initiation of bankruptcy proceedings. It also guarantees the enforcement of the terms and provisions contained in such contracts in the event of default by either party, thereby safeguarding the rights of all parties involved. This comes in light of ISDA's issuance of various guidelines and templates aimed at strengthening netting practices and legislation across different jurisdictions.
The Deputy of Market Institutions affirmed that the CMA continuously reviews and develops the rules and regulations governing the capital market to enhance its attractiveness. He noted that ISDA's endorsement of the alignment of the Close-out Netting and related Collateral Arrangements Regulation with global practices is a positive step toward strengthening confidence in the Saudi market and reflects the Regulation's alignment with international standards in this regard.
Scott O'Malia, ISDA's Chief Executive, stated that the adoption of the Regulation by CMA has enabled ISDA's netting opinions to clearly confirm that netting is enforceable for trades with any Saudi financial counterparty, whether an investment manager supervised by the CMA or a bank regulated by SAMA. He described this is as a big step in the further development of Saudi Arabia's financial markets, and expressed his appreciation to the CMA for its constructive engagement with ISDA and the industry throughout the development and consultation process.
On July 3, 2025, the CMA approved the Close-out Netting and related Collateral Arrangements Regulation, which outline measures for handling the default of a party to a netting agreement or other specific cases outlined in the regulation, provided that one of the parties involved is a capital market institution. The Regulation includes a set of provisions governing close-out netting and associated collateral arrangements, defines its scope of application and the entities subject to it, and defines qualified financial contracts and transactions that would be exempt from the provisions of the Bankruptcy Law. This step is expected to contribute to enhancing the stability and sustainability of the Kingdom's financial sector and the overall capital market framework.