7. Legal Agreement

    7.1. All repo market participants shall ensure that their repo transactions in Saudi Arabia must be governed by the standard Master Repurchase Agreement (MRA) for the Sale and Purchase of Securities (2020 version) as attached in Appendix A, approved by SAMA.

    7.2. Any amendments to the MRA must be incorporated in the Annexures to the agreement and must be mutually agreed by both parties. It should be made clear in trade confirmations or in other alternative agreed forms (e.g. supplementary letter) that the parties mutually agree to a variation of the standard terms and conditions. Parties to the agreement should note that amendments to the MRA may impact the ability of parties to rely on industry legal opinions on the enforceability of the MRA

    7.3. At a minimum, the repo agreement shall consist of:

        7.3.1. Absolute transfer of ownership of the eligible securities;

        7.3.2. Marking-to-market of the repo, unless the eligible security is held by a custodian;

        7.3.3. Use of the haircut and margin call, where necessary;

        7.3.4. Substitution of the eligible securities where necessary; and

        7.3.5. Event of default.

    7.4. The MRA shall be subject to and governed by Saudi law.

8. Risk Management Requirements

Risk management policies and procedures

    8.1. Banks, including other repo market participants are required to put in place policies and procedures to govern their repo activities. The policies should cover governance, authorization, risk management, internal controls and reporting requirements.

    8.2. The risk management policies and procedures must be sufficiently comprehensive covering credit, counterparty, market, legal and operational risks arising from the repo market participant's repo activities.

    8.3. Depending on the scale of its repo activities, repo market participants shall ensure effective coordination between the related functional areas (e.g. treasury, back-office, risk management, compliance and IT functions), as well as readiness of the relevant systems and infrastructure to support effective risk management and their repo activities. Such systems may include systems for securities valuation and management, credit control, custody, risk management, record keeping and regulatory reporting purposes.

    8.4. Repo market participants shall ensure compliance with the relevant accounting standards for repo transactions as endorsed by SOCPA. Counterparty and credit risks

    8.5. Repo market participants must establish exposure limits based on different risk measures, including limits for counterparties and issuers of the underlying collateral securities. These limits must be reviewed on a periodic basis or on a more frequent basis, as market circumstances change.

    8.6. Repo market participants shall also take into account the quality of the securities used in the transaction and apply valuation haircut accordingly. Repo market participants shall manage the associated credit risk of collateral securities issued by non-sovereign and corporate and adjust the terms and conditions accordingly such as in terms of repo rates and haircut.

    Conduct risk

    8.7. The conduct of repo agreements by repo market participants must be in line with the principles of market professionalism and integrity. All repo market participants are prohibited from entering into repo transactions with the intent of manipulating Saudi financial markets.

    8.8. Repo market participants shall ensure the confidentiality of the identity of parties to a repo transaction, at all times, except as otherwise required for regulatory reporting to SAMA.

    Legal risk

    8.9. The ownership of the eligible securities must be fully transferred from the seller to the buyer, even if a custodial arrangement is used to hold the eligible security for parties to the transaction.

    8.10. There must be adequate documentation to cover the type of repo that are intended to be undertaken. Any deviation from the normal repo type as described in this document or any other arrangements, shall be mutually agreed between counterparties and properly documented in the legal agreement.

    8.11. Repo market participants shall ensure that all the relevant legal and regulatory requirements are fully complied with at all times.

9. Eligible Counterparties

    9.1. The following counterparties are eligible to partake in repos transactions, subject to the requirement that at least one principal to the repo transaction must be a bank licensed by SAMA:

        9.1.1. Financial institutions, which include banks, insurers and finance companies licensed by SAMA;

        9.1.2. Capital market institutions, approved by the CMA;

        9.1.3. Corporates, including financial and non-financial corporates incorporated in Saudi Arabia. Corporates should be assessed of their knowledge, sophistication and understanding of risks in the repo market;

        9.1.4. Financial and non-financial corporates not domiciled in Saudi Arabia shall not transact repos where the securities have time to maturity of less than one year. For foreign financial corporates, the maturity of securities provided as collateral shall have tenors at least three months longer than the maturity of the repo transaction; and

        9.1.5. Non-foreign high net worth individual, subject to suitability assessment that they have the knowledge and understand the risks of the repo market.

10. Eligible Securities

    10.1. Eligible SAR denominated instruments shall include:

        10.1.1. Bonds/Sukuk issued or guaranteed by the Government of the Kingdom of Saudi Arabia;

        10.1.2. Securities issued by SAMA;

        10.1.3. Bonds’/Sukuk issuances listed in Saudi Exchange; and

        10.1.4. Any other eligible securities as may be specified by SAMA.

10.2. The legal maturity (i.e. excluding any optionality) of a security must be at least equal to or longer than the maturity of the repo transaction.

10.3. Securities are not eligible as collateral if they are issued or guaranteed by the repo seller.

11. Price Sources and Valuation

    11.1. Counterparties must agree on the price sources to be used to value collateral to minimize disputes between counterparties.

    11.2. The market value of the securities should be calculated using dirty prices, in line with the market practice for the accrued interest/profit which is calculated from the last coupon date up to but excluding the margin delivery date. In the event of a dispute about the price used by the margin caller, both parties should agree on an alternative price source, negotiate promptly, reasonably and act in good faith.

    11.3. The selection of the price sources should follow a waterfall-based approach to account for any possible failure or unavailability of prices from any single source.

12. Custody

    12.1. Prior to engaging in any repo agreements with custodial arrangements, each repo market participant must fully understand the terms and conditions of the custody agreement, including their right and obligations.

    12.2. A licensed bank shall have in place custody arrangement and processes for eligible securities held-in-custody on behalf of the repo participants, including comprehensive systems and processes to monitor and segregate the held-in-custody securities to mitigate the risk of duplicative use of securities.

13.Reporting and Settlement Requirements

    13.1. A bank repo participant shall report all repo transactions involving eligible securities in Section 10 to SAMA on a daily basis. A bank repo participant is not required to report if there are no repo transactions of eligible securities for that day.

    13.2. Other repo market participants shall submit weekly returns on daily positions to SAMA. Weekly reports will cover Sunday to Thursday and should reach SAMA by close of business the following Sunday. Banks are not required to send the weekly returns if there are no repo transactions of eligible securities for that week.

    13.3. The Weekly Reports shall include the following:

        13.3.1. Name both counterparties (buyer and seller)

        13.3.2. Transaction date or deal date

        13.3.3. Value date

        13.3.4. Currency

        13.3.5. Tenor

        13.3.6. Due date

        13.3.7. Cash amount

        13.3.8. Description of securities (i.e. obligor of risk)

        13.3.9. Amortized adjusted notional value of securities

        13.3.10. Haircut

        13.3.11. Initial margin/margin ratio 

        13.3.12. Profit rate

        13.3.13. Profit payment frequency

        13.3.14. Profit amount

        13.3.15. Total amount due

        13.3.16. Market segment for the buyer/seller

        13.3.17. First exercisable option date (if applicable)

        13.3.18. Any substitution for the securities (if applicable)

    13.4. All reports should be sent to email: repo@sama.gov.sa

    13.5. The delivery and fund transfer of non-SAMA issued eligible securities with cash must be done through Tadawul and SARIE, respectively in the case where both the counterparties being licensed agents and currency of transaction is SAR.

    13.6. The exchange of SAMA issued securities with cash must be done through SAMA and SARIE respectively in the case where both the counterparties being licensed agents and currency of transaction is in SAR.

    13.7. The exchange of eligible securities with cash must be done through any agreed systems between the counterparties in the case where one of the counterparties being non-licensed agents or transaction currency is not SAR.

* For the avoidance of doubt, repo market participants are allowed to transact in repos involving perpetual debt with embedded options that could be triggered in less than two years, however the tenor of the repo transaction shall be at least three months shorter than the first exercise date.