Clearstream and Edaa open connection to increase international investor access to the Saudi capital market
- Clearstream will open connection to the Securities Depository Center Company (Edaa) on 14 June 2021.
- ICSD link permits cross-border investor access to the Saudi Sukuk and bonds market and listed exchange-traded funds (ETFs).
- International investors will not need to apply for Qualified Foreign Investor (QFI) status.
Clearstream, the post-trading services provider of Deutsche Börse Group, will connect the Saudi capital market to its network through a linkage with the Securities Depository Center Company (Edaa), a company fully owned by Saudi Tadawul Group and responsible for operating and maintaining the Depository and Settlement System (DSS).
Clearstream is the first ICSD to offer international investors access to the Saudi capital market. Its eligible clients will be allowed to access and trade on the Saudi Exchange commencing 14 June 2021 through the indirect linkage that will be established via HSBC Saudi Arabia who will act as the local custodian for Clearstream. This step will give international investors seamless access to the Saudi capital market by enabling settlement of Saudi Exchange-listed government bonds, non-convertible corporate bonds and ETFs denominated in Saudi Riyal (SAR).
Besides being able to use their existing accounts at Clearstream, eligible customers will enjoy the benefit of not having to apply for Qualified Foreign Investor (QFI) status to invest in the Saudi Sukuk/bonds market and ETFs listed on the Saudi Exchange. For the first time, international investors will be eligible to hold Saudi fixed-income securities and ETFs via a foreign nominee omnibus account structure, benefitting also from the usual suite of ICSD services, including offshore (internal) settlement. As a result, an increase in demand for Saudi government bonds from cross-border investors is expected, thereby improving liquidity in the domestic market.
The linkage comes following the Saudi Capital Market Authority’s (CMA) recent approval of Edaa’s international central securities depository (ICSD) instructions, aiming to develop a consistent regulatory environment in alignment with international best practices. It also represents Edaa’s efforts to support the development of the Saudi capital market and sustain Saudi Arabia’s competitiveness ranking among its G20 peers.
Jan Willems, Head of Global Markets at Clearstream, commented: “The Saudi capital market has been increasingly attractive to international investors. We are excited to now offer our clients access together with excellent market partners with great local reach. Adding the Saudi market to our network is a further token of Clearstream’s commitment to support emerging capital markets in their integration into the global financial system, creating further investment opportunities backed by our trusted, high-quality service offering.”
Raed Alhumaid, CEO of Edaa, said: “We are keen to partner with a leading post-trade services provider as we seek to create strong links with global depositary centres to introduce advanced services for market participants. The linkage with the International Central Securities Depository Clearstream reflects our efforts to facilitate the access of international investors to the Saudi capital market, while strengthening bridges between local issuers and foreign investors, especially in regards to debt instruments listed on the Saudi Exchange, this is in line with the objectives of the Financial Sector Development Program, part of Vision 2030.”
Over the last years, the Saudi capital market has seen an increased appetite from foreign investors for Saudi listed Sukuks and bonds, as the market issuances grew to over USD 106 billion in Q1/2021, with the increased global demand on government issuances. The Saudi Exchange is the largest in the Gulf Cooperation Council (GCC) area, among the largest 10 stock exchanges globally and one of the top three largest emerging market exchanges with a market capitalisation of more than USD 2.5 trillion.
As an international central securities depository (ICSD), headquartered in Luxembourg, Clearstream, which is part of Deutsche Börse Group, provides the post-trade infrastructure for the Eurobond market and services for securities from 58 domestic markets worldwide. With 16 trillion Euros in assets under custody, Clearstream is one of the world’s largest settlement and custody firms for domestic and international securities. www.clearstream.com
The Securities Depository Center Company (“Edaa”) was established in 2016 and is fully owned by the Saudi Tadawul Group. “Edaa” operates and maintains the Depository and Settlement System (DSS) to record and maintain securities and register the ownership of securities on the Saudi Exchange. It aims to enhance the efficiency of securities deposit and registration services, in alignment with Saudi Vision 2030 objectives, through developing a more resourceful environment that fosters excellence within all sectors related to the capital market. For more information, visit: www.edaa.com.sa