Settlement process - Saudi Arabia
In order to access Saudi Arabian securities, CBL's custodian, HSBC, will open an account in the market called the Securities Account (previously named the "Investor Access Trading Portfolio (IATP)") which is a depository account that is also used for trading/settlement. Every trade executed in this account via the brokers is sent to HSBC for affirmation. Whenever HSBC does not have matching instructions from CBL, the trade executions will be rejected as it could be an erroneous or fraudulent trade. This affirmation process and ability to reject a trade provides asset safety protection to investors.
Broker accounts
Investors are required to appoint their own brokers and link their broker accounts to their respective Securities Account prior to trading Saudi Arabian securities on Saudi Exchange.
CBL customers are to inform their local brokers of CBL’s Investor ID / Securities Account as part of the broker account setup.
Settlement cycles
The settlement cycle for Saudi Arabian securities by default is T+2 (Trade date +2). Negotiated deals allow for different settlement cycles ranging from T+0 to T+5 and it must be agreed between the broker/investors.
Trade settlement takes place from Sunday to Thursday in Saudi Arabia, however CBL does not operate on Sundays. With the implementation of PTTP, settlement cycles ranging from T+0 to T+5 will be introduced for Negotiated Deals, which will allow customers to avoid Sundays as a settlement day. Customers who execute Negotiated Deals with their brokers on Wednesdays are strongly advised to ensure that the agreed settlement date (SD) between both parties does not occur on Sundays by agreeing to a T+0, T+1 or T+3/4/5 cycle. The customer’s broker will be able to modify the settlement cycle as agreed between both parties and thereby avoiding Sundays as the settlement date (SD). Settlement of trades in Saudi Arabia is mandatory and trades failing to settle on SD will go through a fail trade (buy-in) process from SD+1 and may result in penalties being passed to the customer from the customer’s broker.
Central counterparty
Muqassa is the central counterparty (CCP) for all listed securities in Saudi Arabia. Muqassa, however does not clear negotiated deals / unlisted securities and therefore does not guarantee market settlement of such trades.
On-exchange trades
The transfer of ownership for Saudi Arabian securities must take place against payment and the settlement of on-exchange trades is mandatory.
Settlement flow
All times stated are in Saudi Arabia local time (Arabian Standard Time).
Foreign Nominee Omnibus account solution for CBL customers
The following settlement flow is applicable to customers holding Saudi Arabian securities via CBL. Investors holding securities via an alternative arrangement, using a global custodian or a local sub-custodian in Saudi Arabia, will be required to follow the standard settlement flow for all Saudi Arabian securities.
Internal transactions within CBL are permitted in all eligible settlement currencies and do not require crossing via Saudi Exchange but are instead reported daily to Saudi Exchange by CBL.
T | Investors purchase or sell securities via their brokers and their broker or underlying local brokers are required to be members of Saudi Exchange. Brokers will receive confirmations from Saudi Exchange for every successful trade execution and will in turn provide them to their customers. The brokers will send their trade allegement to the local custodian. Upon receipt of the market execution file sourced from Saudi Exchange’s system, the local custodian will pre-match the execution against the broker’s allegement and will liaise with brokers in case of a mismatch, pre-matching on Trade Date based on gross amounts + other settlement matching criteria. |
T+1 | The local custodian receives settlement instructions from the investors via CBL. The local custodian receives and processes settlement instructions received up until SD 12:00. |
SD | SD (Settlement Date) = T+2. |
Until 15:05 | There are 3 settlement batches (09:40, 13:00 and 15:05 which provides 3 opportunities for settlement. If a settlement instruction is not received for a given trade execution or not matching, then the local custodian may reject the transaction by market deadline. If a trade execution is rejected by the local custodian, the broker who executed that trade must perform necessary actions (find cash or securities) to ensure settlement of the rejected trade. |
After 15:05 | Edaa conducts DvP Settlement of the trades and the local custodian will send settlement confirmations to CBL. |
SD+1 to SD+4 | The defaulting (selling) broker can initiate buy-in or borrow securities from the market to deliver against unsettled sales obligations. If the broker is successful in their efforts, the trade will settle in the market. |
SD+5 to SD+8 | The CCP initiates buyin if the trade is not yet settled. If the CCP is successful, the trade will settle in the market. However, if the CCP’s buyin is not successful, the broker continues to have the opportunity to buy the shares in the cash market or borrow the securities to fulfil the obligation. |
SD+9 | If the trade still fails to settle by SD+8, a cash substitution will be provided. Cash substitution is a process where the failed trade is settled by paying a cash amount to the buyer. |
Cash clearing
All settlement-related cash must be routed through The Saudi Central Bank’s (SAMA) payment system (SARIE). It is mandatory for each counterparty (broker or custodian) to assign a local bank as a Clearing Agent who acts as a guarantor to the cash settlement and maintains the settlement accounts on behalf of counterparties with SAMA.
Penalties
Buy-in
Any penalties related to fail trades will be levied on the defaulting broker who may pass on the penalties to their customer depending on who caused the failed trade.
OTC Trades
OTC trades are permissible onshore via Negotiated Deals. The CCP does not guarantee the settlement of Negotiated Deals so any issues related to non-settlement of such trades must be handled between the buyer and seller through their respective brokers. CBL customers are also allowed to settle OTC internal transactions within the CBL platform and such trades will be reported to Saudi Exchange on a daily basis.
NCBO Trades
Free of payment transfers with a Change of Beneficial Ownership (CBO) are not permitted unless approved by Saudi authorities. CBL customers who are already registered under the Qualified Foreign Investor (QFI) program and are holding eligible Saudi Arabian securities will be able to transfer their holdings across to CBL and vice versa via FOP NCBO transfers. Such NCBO transfer will typically take about two business days to be approved by Edaa.
Registration
Book-entry securities
The Saudi Arabian market is fully dematerialised.
Physical securities
Physical securities are not eligible in Saudi Arabia.
Stamp duty
Stamp duty is not applicable in the Saudi Arabian market.
Short selling
Covered short selling is allowed for investors other than Natural Persons. However, the investor must borrow securities and have them settled on their account before selling short.
Short selling could only be conducted from specially designated accounts called Short Selling Accounts. This account could only be used for short selling related activities including borrowing securities, short selling, buying back and returning the securities loan. Ordinary trading from such accounts is prohibited. CBL does not have a Short Selling Account in Saudi Arabia.
Turnaround trades
Currently back-to-back trading in Saudi Arabia results in two separate trades and are treated as two individual trades which follows a regular matching and settlement process. Pre-validation by Saudi Exchange of sale transactions is required prior to the order being accepted.
New Issues settlement
Investor will need to submit their bid to the Primary Dealer (PD) directly and quote the Investor ID and Securities Account with EDAA on the bid application form. Upon allotment, the PD will call for the payment of the equivalent funds, which the investor could choose to remit directly to the PD or instruct their custodian make the remittance. On receipt of the funds, the PD will issue instructions to Edaa to transfer the allotted securities to the securities account number quoted on the bid application.
CBL customers should take note to quote CBL’s Investor ID (7003896) and Securities Account with EDAA (06300027239) in their bid application form and are to make payment to the PD directly.