FAQs - Amending the Settlement Cycle for Transactions of Securities listed in the Saudi Capital Market
1. How is a transaction executed?
A transaction is executed by matching the sell order with the buy order.
2. What is the settlement of securities?
It is the process of transferring securities of executed transactions from the seller’s investment portfolio to the buyer’s investment portfolio.
3. What is the settlement of cash?
It is the process of transferring the value of securities for executed transactions from the buyer’s investment account to the seller’s investment account.
4. When is a settlement of securities completed?
A settlement is complete when securities and cash settlements are complete.
5. What is meant by the duration of securities settlement cycle?
It is the period that starts when the sell and buy orders are matched, and ends when securities and cash settlements are completed.
6. What is the duration for the new settlement cycle of securities’ transactions?
In the new settlement cycle, all types of securities’ transactions are completed after two business days following the transaction execution date; i.e. (T + 2).
7. What does the letter (T) stand for? and what does the added number refer to?
The letter (T) stands for the term (Trade); i.e. transaction.
As for the added number, it refers to the duration required for completing the settlement of a transaction.
8. Does the transition from (T + 0) to (T + 2) settlement have an impact on traders in the Saudi capital market?
No, there is no impact on traders. Buyers can sell securities directly upon executing transactions with no need to wait for completing the settlement of securities.
Also, sellers gain purchasing power that enables them to buy new securities directly upon executing transactions with no need to wait for completing the settlement of securities.
9. Which types of securities will the new settlement cycle apply to?
The new settlement cycle will apply to transactions of securities listed in the market of all types (stocks, sukuk, bonds, Exchange-Traded Funds (ETFs), tradable rights), in addition to over-the-counter transactions (OTC).
10. What is borrowing securities?
Borrowing securities is the temporary transfer of securities from its owner (lender) to an investor (borrower) with an obligation to return them back to their owner at a future agreed upon date. A borrower shall provide and maintain financial collateral as agreed with the lender and shall at all times be not less than 100% of the current market value of the borrowed securities. The value of the collateral provided may be amended at the discretion of The Capital Market Authority.
11. What is short selling?
Short selling is the action of selling borrowed securities; provided that the investor returns them to the lender within an agreed upon period.
12. What is the purpose of short selling?
Short Selling aims to increase liquidity in the market and activate the role of the market maker. It also helps investors in short selling transactions to gain profits.
13. What are the advantages of applying the new (T+2) settlement cycle?
• Increasing levels of asset safety for investors, and providing enough time to verify transactions and deal with errors should they occur.
• Activating the role of market makers in the stock market.
• Aligning the Saudi Stock Market with leading global settlement practices, which will open up new listing opportunities for the Saudi market among other global market indexes.
• Developing an investment environment that promotes institutional-level investments and meets necessary requirements for coping with any future changes.
• Allowing short selling on condition of borrowing equities.