Riyadh: The International Swaps and Derivatives Association (ISDA) has published legal opinions confirming the enforceability of close-out netting in Saudi Arabia, offering global financial institutions increased legal certainty when engaging in the Kingdom’s derivatives market.
According to BERNAMA News Agency, this development follows the Capital Market Authority’s (CMA) issuance of the Close-out Netting and Related Collateral Arrangements Regulation earlier this year, which establishes the legal framework for close-out netting arrangements. Close-out netting allows parties in qualified financial contracts to offset obligations in case of default, resulting in a single net payment due. This mechanism aids in reducing systemic risk and promotes orderly contract settlement, enhancing investor confidence.
In a statement, the CMA highlighted that the new regulation fortifies the financial system’s stability and protects investors by ensuring the enforceability of qualified financial contracts, safeguarding the rights of all involved parties. CMA Deputy for Market Institutions, Raed Alhumaid, emphasized that this development represents Saudi Arabia’s continued efforts to strengthen its financial infrastructure. He expressed approval of ISDA’s legal opinions, recognizing the enforceability of close-out netting in the Kingdom following the regulation’s issuance.
For international institutions, this recognition offers a clearer legal foundation for participating in Saudi Arabia’s derivatives market, supporting growth in market liquidity and depth. Since its launch in 2020, with MT30 Index Futures and subsequent expansions to single stock futures in 2022 and single stock options in 2023, Saudi Arabia’s derivatives market has evolved as a vital platform for hedging and risk management.
The new framework defines qualified financial contracts, outlines application scope and exemptions from the Bankruptcy Law, and is expected to enhance the stability and sustainability of the Kingdom’s financial and capital market sectors.