a) The purpose of these Regulations is to regulate Securities Clearing activities in the Kingdom and specify the procedures and conditions for obtaining an authorisation to carry out such activities.

b) The provisions of these Regulations shall apply to each CCP authorised in accordance with the Capital Market Law and these Regulations and to any applicant applying for authorisation in accordance with the provisions of these Regulations.

c) The provisions of these Regulations shall not apply to the clearing services provided by SAMA to Local Banks.

d) The memorandum of cooperation between the Authority and SAMA shall specify the cooperation mechanism in the implementation of regulatory powers over the CCPs and Clearing Members that are Local Banks subject to SAMA oversight and supervision

a) Any reference to the “Capital Market Law” in these Regulations shall mean the Capital Market Law issued by the Royal Decree No. M/30 dated 2/6/1424H.

b) Subject to paragraph (c) of this Article, expressions and terms in these Regulations have the meaning which they bear in the Capital Market Law and the Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority, unless the context indicates otherwise.

c) For the purpose of implementing these Regulations, the following expressions and terms shall have the meaning they bear as follows, unless the context indicates otherwise: Novation: a process whereby the original contract between one party and another party is discharged and replaced with two new contracts, one between the CCP and the first party and the other between the CCP and the second party.

Designated Securities: Securities in respect of which the CCP has issued a notice designating such Securities as not benefitting from the Clearing service.

Backtesting: an ex-post comparison of observed outcomes with expected outcomes derived from the use of margin models.

Interoperability Arrangement: an arrangement between two or more CCPs that involves a cross system execution of transactions.

Procyclical: the changes in risk-management requirements or practices that are positively correlated with business or credit cycle fluctuations and that may cause or exacerbate financial instability.

Pass Through Service: a service offered by the CCP in respect of Designated Securities to facilitate their settlement without providing Clearing services.

Liquid Net Assets: assets funded by equity (common stock, disclosed reserves or other retained earnings) which are not otherwise encumbered and freely available to cover General Business Risk.

Open Offer: a process whereby the CCP extends an open offer to act as a counterparty to market participants and is immediately interposed as counterparty in a transaction where the two parties agree on the terms when the pre-agreed conditions of the CCP are satisfied.

Independent Member: a non-executive member of the board who enjoys complete independence in his position and decisions, including having no business, family or other relationship that raises a conflict of interests regarding the CCP, its management or its Clearing Members, and who has had no such relationship during the five years preceding his membership of the board.

Clearing Member: a Direct Clearing Member or a General Clearing Member.

General Clearing Member: has the meaning specified in paragraph (a) of Article 21 of these Regulations.

Direct Clearing Member: has the meaning specified in paragraph (a) of Article 21 of these Regulations.

Convertible Currency: a currency that can be bought or sold without restrictions imposed by any governmental authority in the Kingdom or in the jurisdiction which has issued the currency.

Client: a natural or legal person which:

• 1) is not a Clearing Member; and

• 2) has a contractual relationship with a Clearing Member which enables that person to clear its transactions with the CCP.

Appropriate Close-out Period: the time period to close all open positions of the defaulting Clearing Member which starts from the last collateral provided by the defaulted clearing member until the closing of his positions.

Principles for Financial Market Infrastructures: the international standards for financial market infrastructures issued by the Committee on Payment and Market Infrastructures (CPMI) and the Technical Committee of the International Organization of Securities Commissions (IOSCO).

General Business Risk: the risks and potential losses arising from the CCP’s operation as a business, but excluding risks and losses related to a Clearing Member default. General Business Risk includes any potential impairment of the CCP’s financial position as a consequence of a decline in its revenues or an increase in its expenses.

Wrong-Way Risk: the risk arising from exposure to a counterparty when the collateral provided by that counterparty is highly correlated with the credit quality of that counterparty.

Qualifying Central Counterparty: a CCP that has demonstrated that it is established and operating consistently with the Principles for Financial Market Infrastructures.

Clearing: the process of establishing each party's rights and obligations arising from Securities trading, including the calculation of net obligations, and ensuring that financial instruments or cash are available to secure the exposures arising from such obligations.

Margin: a Variation Margin or an Initial Margin.

Variation Margin: margin that is collected to cover the current exposure resulting from actual changes in market prices which affects the value of the Clearing Member’s position.

Initial Margin: margin that is collected to cover the potential future exposure resulting from potential changes in the value of the Clearing Member’s position over the appropriate close-out period in the event that Clearing Member defaults.

a) The CCP must comply with the Capital Market Law, these Regulations and the other relevant regulations and rules. The CCP must provide to the Authority without delay any information, records or documents that the Authority may require for the purpose of implementing the Capital Market Law and its Implementing Regulations.

b) The Governing Body and employees of the CCP must comply with any request issued by the Authority to appear to explain any matter or to assist in any enquiry relating to implementing the Capital Market Law and its Implementing Regulations.

The CCP authorised in accordance with these Regulations shall be designated as a systematically important financial institution in the Kingdom. In this regard, the CCP is required to adhere to the Principles for Financial Market Infrastructures on an ongoing basis, including any related supplemental guidance issued from time to time by the Committee on Payment and Market Infrastructures and the International Organization of Securities Commissions.

a) The Authority may waive a provision of these Regulations in whole or in part as it applies to an applicant or a CCP either on an application from the applicant or the CCP or on its own initiative.

b) The Authority will make an announcement of the waiver of any provisions where it believes that:

• 1) the waiver of the provision may be of application to more than one CCP; and

• 2) the publication of the waiver will not materially prejudice the CCPs.

a) The CCP must have rules, procedures and contracts that are clear, understandable and consistent with the provisions of the Capital Market Law and these Regulations.

b) The CCP, upon obtaining an authorisation from the Authority in accordance with the Capital Market Law and these Regulations, shall be considered an exempt person in accordance with the provisions of the Securities Business Regulations.

c) The CCP shall submit an annual report to the Authority to ensure its compliance with all provisions of these Regulations.

a) For the purposes of this Article, an applicant for authorisation means the person that is applying for authorisation to provide Securities Clearing services in the Kingdom. An applicant for authorisation becomes subject to these Regulations from the date of submission of its application.

b) An applicant for authorisation as a CCP Established in the Kingdom must demonstrate to the Authority that:

• 1) it has Liquid Net Assets greater than the higher of:

  • a. SAR 100,000,000;

  • b. six months anticipated operating expenses, excluding depreciation and amortization expenses; or

  • c. such other amount as determined by the Authority in its absolute discretion;

• 2) it is fit and proper and has adequate expertise and resources to carry out Securities Clearing services in the Kingdom;

• 3) it has managerial expertise, financial systems, risk management policies and systems, technological resources, policies, procedures, and operational systems that are sufficient to fulfil its business and regulatory obligations;

• 4) its Governing Body and employees who will be involved in its Clearing services have the necessary qualifications, skills, experience and integrity;

• 5) the identities of the shareholders that have direct or indirect holdings of 5% or more of the capital and the amounts of those holdings, whether they are natural or legal persons;

• 6) it will, upon authorisation, be in compliance with the Principles for Financial Market Infrastructures including, without limitation, the disclosure framework and assessment methodology;

• 7) the time span for the CCP recovery in accordance with the provisions of Article 20 of these Regulations; and

• 8) it will be in compliance with such requirements as may be determined by the Authority, in its discretion, from time to time.

c) In addition to the authorisation requirements set out above, the Authority may stipulate additional authorisation requirements to be met by, or specific conditions or limitations to be applied to either all applicants for authorisation, or particular applicants or categories of applicants, as it considers appropriate.

d) An application for authorisation may be submitted by the founders or controlling shareholders of an applicant if the applicant is not yet established. The founders or controlling shareholders become subject to the provisions that apply to an applicant from the date of submission of the application.

e) The form and contents of the application and all information and documents filed with it must be as prescribed by the Authority.

f) An applicant for authorisation must notify the Authority immediately of any material changes to the information provided to the Authority for the purposes of application for authorisation.

g) As a condition for authorisation as a CCP Established in the Kingdom, the applicant must be a joint stock company established in the Kingdom.

h) If the applicant has close links with another natural or legal person, the Authority must be satisfied with the integrity, regulatory status, business record and financial soundness of any such natural or legal person, and that such close links will not impair the effective supervision of the applicant, or its operations and compliance with these Regulations.

a) The Authority may refuse an application where it is not satisfied as to the suitability of the substantial shareholders of the applicant.

b) The CCP established in the Kingdom shall be required to obtain prior approval from the Authority for any change that exceeds 5% in its ownership structure.

c) The CCP established in the Kingdom must notify the Authority, in such form as the Authority may prescribe, that a person is intending to establish close links with the CCP at least 30 days in advance of the proposed effective date, or if such advance notice is not possible, immediately on the CCP becoming aware of any change in close links. The notice must include such information as the Authority requires to satisfy itself of the identity of the person with whom the CCP proposes to establish close links, its integrity, regulatory status, business record and financial soundness.

d) The CCP established in the Kingdom must not establish close links with another person unless the Authority has approved the close links in writing.

e) Before approving any close links, the Authority must be satisfied that such links will not impair the effective supervision of the CCP established in the Kingdom or its operations and compliance with the Capital Market Law and its Implementing Regulations.

f) Clearing Members, and Clients of Clearing Members, shall have no recourse to the equity of the CCP established in the Kingdom, save as provided in these Regulations and in the relevant CCP Rules. The liability of such CCP to its Clearing Members and their Clients is limited as set out in these Regulations and in the relevant CCP Rules.