The worldwide market for derivatives is in the trillions of dollars. However, despite the CMA formally recognizing certain derivative instruments (rights to securities, contracts for differences, futures, and options) in its regulations, and derivative transactions becoming more widespread amongst Saudi banks and larger corporations, derivatives are still a relatively new phenomenon in the local market. There has also been continuing uncertainty as to the enforceability of derivatives under Saudi law due to certain Sharia prohibitions, such as speculation and uncertainty (gharar). That uncertainty is mitigated, however, by the fact that disputes relating to derivative transactions are likely to be heard by the Committee for the Resolution for Securities Disputes, a judicial committee linked to the CMA, that is likely to uphold transactions with a clear commercial rationale (e.g. hedging) instead of basing its decisions on Sharia arguments alone.
Expansion of derivatives in the Kingdom of Saudi Arabia will be boosted by the introduction of exchange-traded derivatives on the Saudi stock exchange, a development that was announced in 2019 and which is expected to occur by the end of the year. This advance is part of the Vision 2030 Financial Sector Development Program, and there are plans to launch further derivative products on the market over time to diversify investment opportunities. Regulations for the new derivatives market have been issued for consultation but not yet finally issued.
Z&Co, is the leading law firm in Riyadh & Jeddah, Saudi Arabia and our capital markets lawyers offers advise and assistance on derivatives in the region. Contact us now.