The Capital Market Authority (CMA) of Saudi Arabia has initiated a 30-day public consultation on a proposed regulatory framework for close-out netting applicable to capital market institutions. The consultation period concludes on March 26, 2025.
The draft framework aims to enhance financial system stability and investor protection by ensuring the enforceability of qualified financial contracts involving capital market institutions in default scenarios. It outlines procedures for managing defaults under netting agreements and associated financial collateral arrangements, ensuring these agreements remain enforceable even if the original conditions of the contracts change.
This initiative aligns with international standards, notably those set by the International Swaps and Derivatives Association (ISDA), which has long advocated for clear legislative support for close-out netting to mitigate systemic risk in financial markets. ISDA’s Model Netting Act serves as a reference for jurisdictions aiming to establish or refine their netting legislation.
The CMA’s move follows the Saudi Central Bank’s (SAMA) recent issuance of the “Close-Out Netting and Related Financial Collateral Arrangements Regulation” in February 2025. SAMA’s regulation provides a comprehensive framework governing close-out netting processes and related collateral arrangements, particularly in bankruptcy contexts.
Market participants and stakeholders are encouraged to review the draft framework and submit feedback through the Unified Electronic Platform for Consulting the Public and Government Entities.
The CMA emphasised that all comments received will be considered in finalising the regulatory framework, which aims to bolster the resilience and sustainability of Saudi Arabia’s financial sector.
