CMA stresses compliance in foreign markets

Logo of Capital Market Authority (CMA)

Saudi Arabia’s Capital Market Authority (CMA) instructed all capital market institutions today, Oct. 29, to comply with regulatory requirements governing securities dealings in foreign markets, aiming to protect investors and mitigate transaction-related risks, pursuant to a CMA Board decision introducing provisions to strengthen compliance.

According to a CMA statement, key provisions require institutions to complete suitability assessments before commencing dealings with clients in foreign markets, in accordance with the Capital Market Institutions Regulations. Reassessments are not required for each subsequent transaction unless a material change warrants one under the relevant provisions.

The CMA stressed that capital market institutions must fulfill their fiduciary duties and refrain from using client assets, information or opportunities for their own benefit or that of other parties, including foreign brokers, unless they fully disclose such arrangements and obtain clients’ explicit, written consent separately from any other consent. This includes benefits arising from securities lending and payment for order flow.

The authority also emphasized compliance with regulatory requirements governing the lending of client securities in foreign markets, including collateral requirements and clients’ explicit, written and separate consent. Institutions must meet suitability requirements and take reasonable steps to ensure clients understand the risks associated with securities borrowing and lending transactions.

For margin transactions in foreign markets, capital market institutions must collect an initial margin of at least 50% of the transaction value before execution, monitor margin levels daily and ensure they do not fall below 25% of the current market value of each investment position in the relevant security.

The CMA prohibited margin transactions in leveraged exchange-traded funds (ETFs), other leveraged securities, and securities linked to commodities, metals and volatility indices, whether conducted directly or through other parties, including foreign brokers.

The CMA said capital market institutions must continue monitoring margin levels, comply with decisions issued in this regard and provide the authority with the required data upon request.

The provisions took effect on the date of issuance, with capital market institutions required to adjust their arrangements for existing clients in line with the circular by Dec. 31, 2026, without affecting existing investment positions, as part of the CMA’s efforts to protect investors and mitigate risks associated with securities transactions.

The CMA said the circular follows a draft proposal titled “Regulatory Provisions Related to Securities Dealing in Markets Outside the Kingdom,” published for public consultation on Sept. 27, on the Istitlaa platform and the authority’s website for 30 calendar days to solicit public feedback.