Saudi Arabia’s Post Trade Transformation Program ushers in a new era

The Post Trade Transformation Program (PTTP) that is being rolled out in the Kingdom of Saudi Arabia is an ambitious overhaul of the country’s capital market infrastructure, spanning the Saudi Exchange Company, the Securities Depository Center Company “Edaa” (CSD), and the Securities Clearing Center Company “Muqassa” (CCP). The changes are centred around modernisation – ensuring that the country presents a hospitable environment for investors and market participants. To that end, PTTP introduces greater efficiencies, helps manage risks and opens market opportunities that didn’t previously exist.

The Post Trade Infrastructure Enhancement is one of the Saudi Tadawul Group’s strategic programs that consists of multiple initiatives to enhance products and services infrastructure in the Saudi capital market, creating value for investors and the market in general. Settlements, along with custody and clearing services form the core of these enhancements through the PTTP roll out.

“The Post Trade Transformation Program sets a robust foundation for Saudi’s capital market to strengthen and grow,” says HSBC’s Ahmed AlShammari, Senior Vice President, Markets and Securities Services, HSBC Saudi Arabia. “It’s an exciting time of economic and market transformation in the country.”

The advances PTTP brings into effect will help:

• Contribute to greater market stability and more secure post-trade activities
• Enable the development of new and innovative products and services
• Attract a wider range of investors by aligning with international best practices

PTTP is being implemented via a phased approach: phase 1, including changes to Index Future Contracts, was enacted in August 2020; phase 2, including infrastructure enhancements for both cash and derivative markets was executed in April 2022; and phase 3, dealing with other derivatives, is planned for future implementation.

Many of the enhancements are focussed on making the market more efficient. For example, the dual portfolio model has been discontinued, which removes the need to link client securities accounts to broker managed portfolios, thereby granting quicker market access. PTTP also introduces more flexibility for trading and settlement cycles. For negotiated deals, buyers and sellers may now agree on a settlement cycle from T+0 to T+5. Average pricing and post execution allocation of trades to investor accounts are also key features introduced to enable investors to take advantage of market opportunities.

In addition to improving efficiency and speed, the changes are also geared towards reducing risk. The Capital Market Authority’s approval of the Securities Central Counterparties regulation paved the way for the introduction of a Central Counterparty Party (CCP) in the Kingdom.

“The introduction of Muqassa in its role as a Clearing House and CCP underpins the market authorities’ focus on managing risk in an ever growing market,” said HSBC’s Ashwin Rao, Vice President, Direct Custody and Clearing, HSBC Saudi Arabia. “This also enables Edaa’s focus on enhancing its services such as the introduction of corporate event notifications or enhancing the settlement mechanics of primary issues for faster investor access to their allotments.”

“Muqassa now plays a critical role in the Saudi economy by acting as a central counterparty clearing center in the Kingdom, Muqassa has successfully completed its full coverage of all exchange traded products in the Saudi Exchange. Our focus remains to strengthen cooperation between different capital market institutions and roll out enhancements that align the Saudi capital market with international practices” said Wael Al Hazzani, Chief Executive Officer, the Securities Clearing Center Company (Muqassa).

The use of ISO standard messaging for post trade communication marketwide enhances the pace of post trade matching and settlement activity. Implementation of multiple settlement cycles during the day ensures investors have faster access to their settled securities or cash. Multiple settlement cycles also ensure that investors will not miss the opportunity to settle a trade due to intra-day delays while instructing or funding these trades. The recent enhancements to the fails mechanism also resulted in a substantial reduction in failing trades and is a key aspect of what PTTP aims to achieve.

“Saudi Arabia’s regulatory framework is evolving as it ramps up to achieve key pillars connected to Saudi Vision 2030,” said Rafael Moral, Regional Head of Securities Services for Asia-Pacific and MENAT, HSBC. “At the heart of this is an significant change to the country’s economy as it diversifies. PTTP is playing an important part in this evolution.”

“We were able to introduce new enhancements, including the new central securities depository (CSD) system, aligned with international standards, to enhance the experience for capital market institutions (CMIs), custodians, settlement agents and investors. It has improved Saudi capital market operations, reducing risk and making the market more efficient overall. This will make the Saudi market more attractive to the international investor community. The new central securities depository system supports the Saudi Tadawul Group’s transformation agenda by offering innovative services and creating strong links with global depository centers” says Raed Al Humaid, Chief Executive Officer, the Securities Depository Center Company (Edaa).

More is to come, as Saudi Arabia continues to reshape its economy and build out the utility of its markets. Investors can also expect enhancements to the cash, securities-based lending and options markets.