The Introduction of a Central Clearing Party
Some two years since its establishment in 2018 and just months after the issue of its license in January this year, Securities Clearing Center Company (“Muqassa“) announced the commencement of its operations on 30 August 2020.
For the first time in Saudi Arabia, an independent central clearing party will guarantee the settlement of all centrally cleared trades executed on Tadawul, including Exchange traded and OTC derivatives. Clearing of Index Futures Contracts commenced on 30 August 2020 and the clearing of other instruments, including equities, is set to follow.
The announcement follows the introduction of T+2 trading and Tadawul’s recent inclusion into the MSCI Emerging Markets Index and represents yet another significant milestone in the development of Saudi Arabia’s capital markets and the realisation of one of the key initiatives in the Financial Sector Development Program 2020 (FSDP).
The benefits resulting from Muqassa’s role in providing centralized counterparty risk management and developing clearing services are anticipated to be significant. The clearing framework is expected to remove systemic market risks and facilitate the introduction of new exchange traded asset classes (such as derivatives) and introduce mechanisms (such as netting and settlement finality) which will increase efficiency and certainty, and ultimately expand the investor base both domestically and internationally.