兔子先生Finance Middle East Symposium
13 May 2025
Located in Saudi Arabia鈥檚 capital city, Riyadh, the 兔子先生Finance Symposium was hosted for the first time in the Middle East. Karl Loomes and Carmella Haswell report on the key highlights of the event which provided a deep dive into this emerging market
Image: Andrew Davis
The Kingdom of Saudi Arabia (KSA) has garnered much attention from the securities finance market. For the first time, 兔子先生Finance Times hosted its Middle East Symposium, which took place at the Hilton Hotel in the Kingdom鈥檚 capital, Riyadh. Here, industry leaders, financial experts, and innovators explored the latest trends, challenges, and opportunities.
Saudi Arabia鈥檚 evolving financial landscape provides a distinctive backdrop for in-depth discussions on critical topics, including market access, risk management, and emerging technologies shaping the future of securities lending and borrowing (SBL), as well as collateral management.
Firms call for clarity over Saudi Arabia's operational infrastructure
鈥淚n terms of the market infrastructure support for securities financing transactions, things have been heading in the right direction with areas for continuous improvement,鈥� said Cheuk-Yin Cheung, head of structured products, Middle East at Clifford Chance.
The 鈥楻egulatory Framework and Market Structure鈥� panel examined the interplay between market governance and operational infrastructure that underpins the Kingdom鈥檚 SBL environment.
Cheung highlighted the importance of Edaa鈥檚 鈥� the 兔子先生Depository Center 鈥� establishment of international central securities depository links with entities such as Euroclear and Clearstream.
She believes it sets a blueprint for the opening of more Saudi securities to be readily transferable, particularly in secondary markets where they may be used as collateral assets.
The discussion highlighted that within a relatively short space of time, the investor accounts system within Edaa, as well as enabling regulations from the Capital Market Authority (CMA), has significantly changed the ecosystem for 鈥渙ff-exchange鈥� transfers of Saudi securities from a starting point where permitted transfers of Saudi securities centred on 鈥渙n-exchange trades鈥� at the Tadawul, to a wider range of circumstances today covering repo transactions, SBL, regulated short-selling, and as collateral to support these transaction types.
Jalal Faruki, head of custody and securities services at SNB Capital, noted that there have been 鈥渁 lot of positive and significant changes鈥�. Providing an overview, he said stock loan regulation in the country has been in effect since 2017-18, but that trade activity was not seen until the introduction of post-trade technology in 2022. Activity has 鈥渆xploded鈥� since then.
鈥淚t鈥檚 an evolution. What we saw in 2024 was a huge volume increase in activity and value of securities on loan. We went from less than 30 securities on loan in prior years to nearly 200,鈥� he added.
However, through this development, Faruki noted that new challenges arose to continue scaling and growing the market. For example, transaction costs have been 500 riyal per trade, which creates limitations and can lead firms to create minimum trade sizes or minimum loan periods. Such transaction costs also limit the ability to do stock loans for very active borrowers and market makers.
On the asset servicing and custody side, in terms of practical challenges, a number of local custodians are not able to reflect securities on loan as part of the investment or custody account infrastructure, which causes breaks in the middle office and fund accounting, Faruki said. He continued: 鈥淚 expect that this year, we鈥檒l start seeing some of those infrastructure gaps getting resolved.鈥�
Representing BNY, Ina Budh-Raja, global head of securities finance regulatory strategy, says the firm is now in a position to be lending on behalf of its offshore clients 鈥� 鈥淚t has been a journey to be established here, we鈥檝e appreciated the opportunity to work extensively with local partners and regulators to achieve a viable operating model and we鈥檙e delighted to go live now.鈥�
As she welcomed the engagement with local regulators and the country鈥檚 stock exchange, she noted the importance of establishing clear best practices around how the market operates in order to generate liquidity.
Currently, one of the challenges in the market for Budh-Raja revolves around how international agents plug into the market, where there is a requirement for a local securities lending agent and further, the need for market infrastructure to evolve in enabling triparty collateral management models to operate along internationally established frameworks.
鈥淗aving the ability to use the market standard Global Master 兔子先生Lending Agreement, adapt from there, and develop an annex around it, is very important for capability, and we welcome that as an agent,鈥� she said.
Budh-Raja added: 鈥淲e have a large programme that, over time, is eager to access the 80 per cent of Shariah holdings in the market. 80 per cent of holdings in Saudi are still trapped, so how do we unlock that inventory? It鈥檚 not straightforward, but work is being done.鈥�
Thinking ahead, Faruki asked: 鈥淲hat鈥檚 important is to look at what鈥檚 the natural supply and demand, and how do we find solutions to cater to that?鈥�
The panel also raised the subject of netting. In February 2025, the Saudi Central Bank (SAMA) issued and enforced Close-out Netting and the related Financial Collateral Arrangements Regulation.
In agreement, the panellists highlighted the importance of netting to achieve an efficient market within Saudi and clean netting opinions, which extend to coverage of the local sovereign wealth funds, will be crucial to achieving the full benefits of the new netting regulations.
Providing more information on the current situation, Faruki noted that capital market institutions, such as SNB Capital, or anyone regulated by the CMA falls under those Close-out Netting regulations.
However, he pinpointed that there is 鈥渘o clear view鈥� on investment funds domiciled in Saudi Arabia which are managed by capital market institutions, which are an important part of any securities finance ecosystem.
He suggested that this raises questions: 鈥淗ow can we enable a standard agency lending model where Close-out Netting applies to the underlying institutional clients and investment funds a capital market institution may provide agency lending services to?鈥�
Concluding the panel, Budh-Raja said: 鈥淎s we move forward, we've got a good starting point and the more that the market centres around global best practices, the more we will see regulatory clarity, which will ease accessibility by the international market 鈥� really enabling the market to operate at full scale to support the broader policy objectives of Saudi Vision 2030.鈥�
Collateral management solutions in the Kingdom
Setting the tone for the 鈥楥ollateral Management and Solutions in Saudi Arabia鈥� panel at this year's event, moderator Ricky Maloney, Qatar country executive and head of GCC region at Davies Group, quipped: 鈥淚f the answer is not among these four, you won鈥檛 find it anywhere!鈥�
Though the Saudi market has seen its sovereign bodies involved in securities finance for some time, for non-government related entities in the country (and region as a whole), the concept is fairly new. This gave proceedings an interesting tone 鈥� panellists having to address the simple questions and ideas, and not just the more complex and intricate that we sometimes see.
First among these questions was, why should an asset owner engage in securities lending?
Naturally, the opportunity to bring in additional revenue is 鈥減aramount鈥�, said Simon Squire, global head of product management at BNY. When you are holding securities for the long term, he noted, it brings an opportunity to lend them out. The risks, he pointed out, can be managed by collateralising the loan.
Touching on a theme seen across a number of panels during the day, he highlighted the preference for the use of cash as a collateral. This is natural in a market where securities finance is still in its infancy, but Squire reiterated the point of using securities as collateral as well. Using your owned assets as collateral, he suggested, allows a firm to leverage its balance sheet in an efficient way.
In this area, Greg Donovan, vice president, collateral services, State Street, offers some advice: 鈥淭hink about collateral at the point when you are thinking about the thing you will need collateral for.鈥� It should be an active process, he highlighted, with firms keeping the end goal in mind when looking at what their obligations are, legal framework, and what assets they wish to use.
The importance of collateral goes beyond this, however. The efficient use of collateral, and the benefits it brings, is a facilitator for the wider market as the region develops, underscores Will Jeffries, executive director and head of international sell-side trading services sales at J. P. Morgan.
Squire reiterated this point, suggesting that while collateral is there for the event of default, it is fundamental to financing flows.
The use of triparty was another major area of discussion during the panel.
Triparty, of course, brings a third-party custodian into the collateral process. This means, observed Jeffries, that collateral is centralised, allowing for automation and mobilisation 鈥� 鈥減utting it in the right place at the right time鈥�.
But the benefits go far beyond this, compared to bilateral arrangements.
Squire emphasised that with just two parties, there can often be scaling costs. A triparty arrangement 鈥� due in large part to the size and expertise of the triparty agent 鈥� can help accurately value assets, assess their eligibility, and therefore reduce costs.
As Donnovan put it: 鈥淭he key part is the prefix 鈥榯ri鈥� 鈥� you have a large, independent party, working to ensure that all collateral obligations are fulfilled for the benefit of both sides of the trade.鈥�
Emphasising this efficiency and expertise in recent real-world examples seen at BNY, Squire noted that even despite recent geopolitical turmoil hitting markets globally, 鈥渨e didn鈥檛 miss a heartbeat鈥�.
Coming back to the country鈥檚 鈥� and region鈥檚 鈥� preference for cash collateral, the panel were seemingly of one mind; while cash is seen as easier, and is usually the preference in the less-developed markets, it comes with additional costs and missed opportunities.
Speaking of the extensiveness of cash, Donovan called attention to the fact that if you are using cash for collateral, you are not using that cash for something else. In the case of an active fund, for example, freeing up that cash will mean having more money to put towards the funds primary, money-generating, purpose.
With the symposium being held in the Kingdom of Saudi Arabia, naturally the question arose 鈥� is there growing demand for the use of KSA securities as collateral?
Again the panel were in alignment with their overall view 鈥� there is growing demand, and a lot of enthusiasm, but there is still a long way to go.
Chief among some of these considerations are local regulations and Shariah law.
One area where these concerns still need to be addressed, Jeffries flagged, is in refinancing of cash collateral 鈥� the (potential) need for reinvested collateral to also be Shariah-compliant. He noted that as lending grows, liquidity increases but that will increase costs, meaning 鈥渁n efficient refinancing mechanism is key for the next stage鈥�.
Ownership transfer was another factor that needs to be addressed when it comes to Shariah law. Here, Jeffries noted, a number of emerging markets in Asia (notably South Korea and Taiwan) offer an example. These are beneficial owner markets where title transfer is a problem, and where the pledge system has been used to mobilise these assets.
Away from these technicalities, another panellist highlighted an often even more practical problem that needs to be addressed when using KSA securities in international markets 鈥� the working week is different, with Saudi Arabia working a standard week of Sunday to Thursday, while the majority of the world works Monday to Friday.
Again, the panel was unanimous on one key point 鈥� this is an exciting time for the securities finance market in Saudi Arabia.
Saudi is a 鈥榖lank sheet of paper鈥� for development
The market plays host to extremely advanced technologies, however participants see evidence of archaic technology that is still in play today.
To this, Andrew Geggus, global head of agency lending at BNP Paribas, asked: 鈥淲hat can we do as an industry to embrace new technologies and make the market more efficient, but also understand the limitations of what we can actually do?鈥�
Panellists explored how fintech, blockchain, and automation are revolutionising securities finance worldwide in the 鈥楪lobal Trends in 兔子先生Finance Technology鈥� session. Speakers also examined practical applications and how regional centres like Saudi Arabia are pioneering technological integration.
During the session, Geggus emphasised resource challenges that all firms face, from a business perspective, on what companies can allocate to advancing technology.
To this, he suggested focusing on return investment and how much it will cost firms to achieve their end goal. For example, Geggus is already seeing AI being used in the market, such as bots that automatically do locates for firms. He added: 鈥淭rading automation has increased over the last few years, but I still see some back office processes that are using Excel.鈥�
In terms of AI, there are three different sets of organisation types involved: large banks which have money assigned to AI at the top of house level; fintech providers which invest in AI across different toolsets as part of an overall technology innovation strategy, which benefits firms at a mid-tier and top-tier level; and there are the lower-tier firms, which have smaller budgets to use to invest in this technology.
When speaking on the lower-tier firms, Darren Crowther, head of global securities finance and collateral management solutions at Broadridge, said: 鈥淭he only way that smaller firms are really going to get benefits from AI from securities finance, is to wait for technology providers to provide it as a service. So very much a waterfall effect, because it's so expensive to invest and fail 鈥� 8 out of 10 AI trials fail.鈥�
Similarly, David Lewis, senior director, securities finance at FIS, commented: 鈥淲e can go as fast, or faster, than the market can. The market is a collection of very different organisations doing different things at different times, at different places, with different budgets and different expectations.鈥�
Focusing on the development of the Middle East, Lewis describes Saudi Arabia as a 鈥渂lank sheet of paper鈥� opportunity.
He explained: 鈥淚t's about best practice here and molding this blank sheet of paper that you guys have in this region, particularly in Saudi Arabia, which has the potential to write its own best practices. Start with the latest technology, not with legacy, not having to rebuild, readjust, reframe.鈥�
For Dimitri Arlando, head of sales EMEA at EquiLend, this region has adopted technology 鈥渞eally well and really fast鈥�, partly because it is a 鈥渂lank sheet of paper鈥� to start with.
鈥淭he issue with AI and machine learning is that possibilities are endless,鈥� he continued. 鈥淪o how do you actually focus on real-world problems? And how can you use AI and machine learning to help solve those real-world problems?鈥�
While this 鈥榖lank sheet鈥� analogy proves to be positive in many panellists鈥� eyes, Geggus believes there needs to be a balance between these 鈥済reat ideas鈥� and a 鈥渂lue sky鈥� thinking, with the reality of the market.
鈥淲hile you want to run ahead at full speed, have a blank sheet of paper to build something new, there's still going to be elements that people have to be aware of. In terms of hurdles, it's purely dealing with an infrastructure where there is a lack of standardisation,鈥� he added.
If a market standard can be met, alongside some form of standardisation, Geggus said this will help with the level of market efficiency.
He explored: 鈥淏ut in reality, there isn鈥檛 standardisation, and that's come through to technology as well. So we have to be aware that there are different technology levels across all firms and, to be an efficient market, we have to try and figure out how we can work together in the most seamless way 鈥� to do so, it's interoperability.鈥�
Lewis commented that there is an opportunity here not to succumb to some of those legacy system issues. While interoperability is needed, there are a lot of the pain points that other markets have been through, such as fee breaks, rates, and reconciliation engines.
鈥淲e're not going to solve everything with that blank sheet of paper, because you do have to have these legacy connections,鈥� he noted. 鈥淏ut the ability to clear away some of the friction, some of the costs, some of the lack of efficiency in the market, I think is huge.鈥�
Crowther suggested that firms should work to create 鈥渟ome kind of data ontology鈥�. He explained: 鈥淚nside your own organisations, you have hundreds of legacy systems as well. So how can you standardise an API down to those platforms? A single source and common data ontology gives you more capability.
鈥淐reating some kind of data ontology where they can communicate over the APIs is undoubtedly the best way.鈥�
Lewis agreed with Crowther, observing that: 鈥淐ompetition is great. Interoperability is reality.鈥�
Providing a Saudi Arabia perspective on technology in the Middle East, Abdullah Alghamedi, section head of securities services at SNB Capital, highlighted the importance of technology for the country. However, he indicated that there are 鈥渕any options for systems鈥� and so 鈥渢he complexity around securities lending may seem challenging鈥�.
In his eyes, the market needs education for the local participants to understand: what the different systems are and how participants can benefit from these systems to grow their business and provide more scalability.
鈥淲e see a system for collateral management, a system for post-trade and trading platforms 鈥� having these different systems could be confusing for a market that didn't have these capabilities just three years ago. So we need to have some sort of education on the business cases of these systems for the local markets,鈥� he added.
Rounding off the discussion, Geggus highlighted that 鈥渆very single year鈥� the market sees the appearance of more vendors and technology solutions. And while this is a 鈥渇antastic thing鈥�, the industry does not have unlimited resources to onboard 鈥渆very single bit of technology鈥�.
In the end, value of investment is key. He concludes: 鈥淲e've been in a bit of a flux over the last 10 years, where there's been more platforms coming forward, there's been more investment into technology, and I think that will carry on. But at the same time, there'll be more scrutiny looking at the analysis of the return on investment of these technology solutions.鈥�
The future of securities finance in the Middle East
With all the excitement and enthusiasm surrounding the burgeoning Saudi securities finance market at this year鈥檚 Middle East Symposium, the panel entitled 鈥楴avigating the Future of Middle East 兔子先生Finance鈥�, looked at some of the challenges the region faces, and what the next few years may have in store.
As the region as a whole pushes towards developing its capital markets, the Kingdom sees its Vision 2030, and the regulatory changes it has brought about over the past few years, in many ways driving the market, suggested Ross Bowman, global head of client management securities lending and repo at BNP Paribas鈥� 兔子先生Services.
One interesting aspect in Saudi, Bowman noted, is that unlike many more established regions, where the secondary market drives activity, in KSA the primary market and IPOs have been generating interest and activity.
More broadly, international investment interest in the country is also growing. Alistair Griffiths, director of business development at the International 兔子先生Lending Association (ISLA), highlighted the fact that 鈥榳hat is happening in Saudi?鈥� is one of the top questions he gets asked.
Though Saudi Arabia is seen as having a securities finance market in its infancy, its central bank and sovereign entities have been participating internationally for decades, making much of their inventory available for securities lending on a global basis.
Simon Lee, managing director and head of business development for EMEA and APAC at eSecLending, reiterated this point, noting that the Gulf has been a key region for his firm for many years, and continues to be the focus on a number of fronts.
Ruth Ferris, senior director and head of Secured Financing for Asia and head of Secured Financing sales EMEA at MUFG Securities, emphasised that the success of securities financing across the Kingdom and the broader MENA region hinges on robust infrastructure, comprehensive systems and procedures, and a collaborative exchange of knowledge among onshore and offshore market participants to master the intricacies of the market."
Both this need for education and the importance of mobilising collateral were reiterated 鈥� from the agent lenders' perspective 鈥� by Andrew Stephen, executive director, buy-side trading services at J.P. Morgan, who also succinctly summed up the attitude of the local market 鈥� 鈥淭he energy is palpable!鈥�
The topic of onshore versus offshore supply was also a key theme of the panel 鈥� offshore being more established via the Kingdom鈥檚 longer-running securities finance market, while onshore is a newer, burgeoning aspect that both KSA and international institutions are looking to explore.
The problem, highlighted by a number of panellists, is that these practicalities of having an established market, with infrastructure in place, means that ease and speed to market still make offshore supply more appetising than onshore.
As Lee put it, though in theory market participants may be neutral in terms of where supply comes from, practically the time to market is a key factor 鈥� which may mean offshore supply being advantageous, depending on the institution concerned.
Moving on to the future of SBL in Saudi, and the challenges that may be faced, the panel once again reiterated the need for education and local expertise 鈥� working with local partners as the linchpin when operating in KSA.
This education, highlighted Bowman, is a two way street 鈥� established international players have a lot to offer the Saudi market, but also have a lot to learn from local players on how to work with, and within, the Kingdom.
Shariah compliance, the panel agreed, was a prime example of where greater knowledge and understanding on the international front would likely facilitate more interaction with markets in the Middle East.
Referencing best practices from the global market, Griffiths raised a key point 鈥� the Saudi market does not simply have to do exactly what other countries have done, but can instead pick the best of each that works for them.
This 鈥榖lank slate鈥� idea was touched on by a number of panels during the day. Whereas for much of the established securities finance markets globally, changing regulations and new technology are adopted within systems and structures that already exist 鈥� building on top of decades of prior laws, regulations, and once-new technologies that are now long-obsolete.
For Saudi Arabia however, and other markets in the Middle East, in many ways they are starting from scratch. There is no 鈥榣egacy debt鈥�. This means there is an opportunity for things to be set up with modern technologies and modern regulatory frameworks in-mind. Blockchain and distributed ledger technology (DLT), the panel indicated, is a perfect example where this could be the case.
Another area of potential opportunity 鈥� and one where Saudi is already differing from other markets 鈥� is the distribution of assets. What is effectively the retail market, noted one panellist, makes up a much larger proportion of supply in KSA than we see in established markets (though retail is growing elsewhere).
None of this process will be quick, and the Kingdom鈥檚 securities finance market still has a long way to go. As Bowman put it: 鈥淭his is a marathon, not a sprint.鈥�
Saudi Arabia鈥檚 evolving financial landscape provides a distinctive backdrop for in-depth discussions on critical topics, including market access, risk management, and emerging technologies shaping the future of securities lending and borrowing (SBL), as well as collateral management.
Firms call for clarity over Saudi Arabia's operational infrastructure
鈥淚n terms of the market infrastructure support for securities financing transactions, things have been heading in the right direction with areas for continuous improvement,鈥� said Cheuk-Yin Cheung, head of structured products, Middle East at Clifford Chance.
The 鈥楻egulatory Framework and Market Structure鈥� panel examined the interplay between market governance and operational infrastructure that underpins the Kingdom鈥檚 SBL environment.
Cheung highlighted the importance of Edaa鈥檚 鈥� the 兔子先生Depository Center 鈥� establishment of international central securities depository links with entities such as Euroclear and Clearstream.
She believes it sets a blueprint for the opening of more Saudi securities to be readily transferable, particularly in secondary markets where they may be used as collateral assets.
The discussion highlighted that within a relatively short space of time, the investor accounts system within Edaa, as well as enabling regulations from the Capital Market Authority (CMA), has significantly changed the ecosystem for 鈥渙ff-exchange鈥� transfers of Saudi securities from a starting point where permitted transfers of Saudi securities centred on 鈥渙n-exchange trades鈥� at the Tadawul, to a wider range of circumstances today covering repo transactions, SBL, regulated short-selling, and as collateral to support these transaction types.
Jalal Faruki, head of custody and securities services at SNB Capital, noted that there have been 鈥渁 lot of positive and significant changes鈥�. Providing an overview, he said stock loan regulation in the country has been in effect since 2017-18, but that trade activity was not seen until the introduction of post-trade technology in 2022. Activity has 鈥渆xploded鈥� since then.
鈥淚t鈥檚 an evolution. What we saw in 2024 was a huge volume increase in activity and value of securities on loan. We went from less than 30 securities on loan in prior years to nearly 200,鈥� he added.
However, through this development, Faruki noted that new challenges arose to continue scaling and growing the market. For example, transaction costs have been 500 riyal per trade, which creates limitations and can lead firms to create minimum trade sizes or minimum loan periods. Such transaction costs also limit the ability to do stock loans for very active borrowers and market makers.
On the asset servicing and custody side, in terms of practical challenges, a number of local custodians are not able to reflect securities on loan as part of the investment or custody account infrastructure, which causes breaks in the middle office and fund accounting, Faruki said. He continued: 鈥淚 expect that this year, we鈥檒l start seeing some of those infrastructure gaps getting resolved.鈥�
Representing BNY, Ina Budh-Raja, global head of securities finance regulatory strategy, says the firm is now in a position to be lending on behalf of its offshore clients 鈥� 鈥淚t has been a journey to be established here, we鈥檝e appreciated the opportunity to work extensively with local partners and regulators to achieve a viable operating model and we鈥檙e delighted to go live now.鈥�
As she welcomed the engagement with local regulators and the country鈥檚 stock exchange, she noted the importance of establishing clear best practices around how the market operates in order to generate liquidity.
Currently, one of the challenges in the market for Budh-Raja revolves around how international agents plug into the market, where there is a requirement for a local securities lending agent and further, the need for market infrastructure to evolve in enabling triparty collateral management models to operate along internationally established frameworks.
鈥淗aving the ability to use the market standard Global Master 兔子先生Lending Agreement, adapt from there, and develop an annex around it, is very important for capability, and we welcome that as an agent,鈥� she said.
Budh-Raja added: 鈥淲e have a large programme that, over time, is eager to access the 80 per cent of Shariah holdings in the market. 80 per cent of holdings in Saudi are still trapped, so how do we unlock that inventory? It鈥檚 not straightforward, but work is being done.鈥�
Thinking ahead, Faruki asked: 鈥淲hat鈥檚 important is to look at what鈥檚 the natural supply and demand, and how do we find solutions to cater to that?鈥�
The panel also raised the subject of netting. In February 2025, the Saudi Central Bank (SAMA) issued and enforced Close-out Netting and the related Financial Collateral Arrangements Regulation.
In agreement, the panellists highlighted the importance of netting to achieve an efficient market within Saudi and clean netting opinions, which extend to coverage of the local sovereign wealth funds, will be crucial to achieving the full benefits of the new netting regulations.
Providing more information on the current situation, Faruki noted that capital market institutions, such as SNB Capital, or anyone regulated by the CMA falls under those Close-out Netting regulations.
However, he pinpointed that there is 鈥渘o clear view鈥� on investment funds domiciled in Saudi Arabia which are managed by capital market institutions, which are an important part of any securities finance ecosystem.
He suggested that this raises questions: 鈥淗ow can we enable a standard agency lending model where Close-out Netting applies to the underlying institutional clients and investment funds a capital market institution may provide agency lending services to?鈥�
Concluding the panel, Budh-Raja said: 鈥淎s we move forward, we've got a good starting point and the more that the market centres around global best practices, the more we will see regulatory clarity, which will ease accessibility by the international market 鈥� really enabling the market to operate at full scale to support the broader policy objectives of Saudi Vision 2030.鈥�
Collateral management solutions in the Kingdom
Setting the tone for the 鈥楥ollateral Management and Solutions in Saudi Arabia鈥� panel at this year's event, moderator Ricky Maloney, Qatar country executive and head of GCC region at Davies Group, quipped: 鈥淚f the answer is not among these four, you won鈥檛 find it anywhere!鈥�
Though the Saudi market has seen its sovereign bodies involved in securities finance for some time, for non-government related entities in the country (and region as a whole), the concept is fairly new. This gave proceedings an interesting tone 鈥� panellists having to address the simple questions and ideas, and not just the more complex and intricate that we sometimes see.
First among these questions was, why should an asset owner engage in securities lending?
Naturally, the opportunity to bring in additional revenue is 鈥減aramount鈥�, said Simon Squire, global head of product management at BNY. When you are holding securities for the long term, he noted, it brings an opportunity to lend them out. The risks, he pointed out, can be managed by collateralising the loan.
Touching on a theme seen across a number of panels during the day, he highlighted the preference for the use of cash as a collateral. This is natural in a market where securities finance is still in its infancy, but Squire reiterated the point of using securities as collateral as well. Using your owned assets as collateral, he suggested, allows a firm to leverage its balance sheet in an efficient way.
In this area, Greg Donovan, vice president, collateral services, State Street, offers some advice: 鈥淭hink about collateral at the point when you are thinking about the thing you will need collateral for.鈥� It should be an active process, he highlighted, with firms keeping the end goal in mind when looking at what their obligations are, legal framework, and what assets they wish to use.
The importance of collateral goes beyond this, however. The efficient use of collateral, and the benefits it brings, is a facilitator for the wider market as the region develops, underscores Will Jeffries, executive director and head of international sell-side trading services sales at J. P. Morgan.
Squire reiterated this point, suggesting that while collateral is there for the event of default, it is fundamental to financing flows.
The use of triparty was another major area of discussion during the panel.
Triparty, of course, brings a third-party custodian into the collateral process. This means, observed Jeffries, that collateral is centralised, allowing for automation and mobilisation 鈥� 鈥減utting it in the right place at the right time鈥�.
But the benefits go far beyond this, compared to bilateral arrangements.
Squire emphasised that with just two parties, there can often be scaling costs. A triparty arrangement 鈥� due in large part to the size and expertise of the triparty agent 鈥� can help accurately value assets, assess their eligibility, and therefore reduce costs.
As Donnovan put it: 鈥淭he key part is the prefix 鈥榯ri鈥� 鈥� you have a large, independent party, working to ensure that all collateral obligations are fulfilled for the benefit of both sides of the trade.鈥�
Emphasising this efficiency and expertise in recent real-world examples seen at BNY, Squire noted that even despite recent geopolitical turmoil hitting markets globally, 鈥渨e didn鈥檛 miss a heartbeat鈥�.
Coming back to the country鈥檚 鈥� and region鈥檚 鈥� preference for cash collateral, the panel were seemingly of one mind; while cash is seen as easier, and is usually the preference in the less-developed markets, it comes with additional costs and missed opportunities.
Speaking of the extensiveness of cash, Donovan called attention to the fact that if you are using cash for collateral, you are not using that cash for something else. In the case of an active fund, for example, freeing up that cash will mean having more money to put towards the funds primary, money-generating, purpose.
With the symposium being held in the Kingdom of Saudi Arabia, naturally the question arose 鈥� is there growing demand for the use of KSA securities as collateral?
Again the panel were in alignment with their overall view 鈥� there is growing demand, and a lot of enthusiasm, but there is still a long way to go.
Chief among some of these considerations are local regulations and Shariah law.
One area where these concerns still need to be addressed, Jeffries flagged, is in refinancing of cash collateral 鈥� the (potential) need for reinvested collateral to also be Shariah-compliant. He noted that as lending grows, liquidity increases but that will increase costs, meaning 鈥渁n efficient refinancing mechanism is key for the next stage鈥�.
Ownership transfer was another factor that needs to be addressed when it comes to Shariah law. Here, Jeffries noted, a number of emerging markets in Asia (notably South Korea and Taiwan) offer an example. These are beneficial owner markets where title transfer is a problem, and where the pledge system has been used to mobilise these assets.
Away from these technicalities, another panellist highlighted an often even more practical problem that needs to be addressed when using KSA securities in international markets 鈥� the working week is different, with Saudi Arabia working a standard week of Sunday to Thursday, while the majority of the world works Monday to Friday.
Again, the panel was unanimous on one key point 鈥� this is an exciting time for the securities finance market in Saudi Arabia.
Saudi is a 鈥榖lank sheet of paper鈥� for development
The market plays host to extremely advanced technologies, however participants see evidence of archaic technology that is still in play today.
To this, Andrew Geggus, global head of agency lending at BNP Paribas, asked: 鈥淲hat can we do as an industry to embrace new technologies and make the market more efficient, but also understand the limitations of what we can actually do?鈥�
Panellists explored how fintech, blockchain, and automation are revolutionising securities finance worldwide in the 鈥楪lobal Trends in 兔子先生Finance Technology鈥� session. Speakers also examined practical applications and how regional centres like Saudi Arabia are pioneering technological integration.
During the session, Geggus emphasised resource challenges that all firms face, from a business perspective, on what companies can allocate to advancing technology.
To this, he suggested focusing on return investment and how much it will cost firms to achieve their end goal. For example, Geggus is already seeing AI being used in the market, such as bots that automatically do locates for firms. He added: 鈥淭rading automation has increased over the last few years, but I still see some back office processes that are using Excel.鈥�
In terms of AI, there are three different sets of organisation types involved: large banks which have money assigned to AI at the top of house level; fintech providers which invest in AI across different toolsets as part of an overall technology innovation strategy, which benefits firms at a mid-tier and top-tier level; and there are the lower-tier firms, which have smaller budgets to use to invest in this technology.
When speaking on the lower-tier firms, Darren Crowther, head of global securities finance and collateral management solutions at Broadridge, said: 鈥淭he only way that smaller firms are really going to get benefits from AI from securities finance, is to wait for technology providers to provide it as a service. So very much a waterfall effect, because it's so expensive to invest and fail 鈥� 8 out of 10 AI trials fail.鈥�
Similarly, David Lewis, senior director, securities finance at FIS, commented: 鈥淲e can go as fast, or faster, than the market can. The market is a collection of very different organisations doing different things at different times, at different places, with different budgets and different expectations.鈥�
Focusing on the development of the Middle East, Lewis describes Saudi Arabia as a 鈥渂lank sheet of paper鈥� opportunity.
He explained: 鈥淚t's about best practice here and molding this blank sheet of paper that you guys have in this region, particularly in Saudi Arabia, which has the potential to write its own best practices. Start with the latest technology, not with legacy, not having to rebuild, readjust, reframe.鈥�
For Dimitri Arlando, head of sales EMEA at EquiLend, this region has adopted technology 鈥渞eally well and really fast鈥�, partly because it is a 鈥渂lank sheet of paper鈥� to start with.
鈥淭he issue with AI and machine learning is that possibilities are endless,鈥� he continued. 鈥淪o how do you actually focus on real-world problems? And how can you use AI and machine learning to help solve those real-world problems?鈥�
While this 鈥榖lank sheet鈥� analogy proves to be positive in many panellists鈥� eyes, Geggus believes there needs to be a balance between these 鈥済reat ideas鈥� and a 鈥渂lue sky鈥� thinking, with the reality of the market.
鈥淲hile you want to run ahead at full speed, have a blank sheet of paper to build something new, there's still going to be elements that people have to be aware of. In terms of hurdles, it's purely dealing with an infrastructure where there is a lack of standardisation,鈥� he added.
If a market standard can be met, alongside some form of standardisation, Geggus said this will help with the level of market efficiency.
He explored: 鈥淏ut in reality, there isn鈥檛 standardisation, and that's come through to technology as well. So we have to be aware that there are different technology levels across all firms and, to be an efficient market, we have to try and figure out how we can work together in the most seamless way 鈥� to do so, it's interoperability.鈥�
Lewis commented that there is an opportunity here not to succumb to some of those legacy system issues. While interoperability is needed, there are a lot of the pain points that other markets have been through, such as fee breaks, rates, and reconciliation engines.
鈥淲e're not going to solve everything with that blank sheet of paper, because you do have to have these legacy connections,鈥� he noted. 鈥淏ut the ability to clear away some of the friction, some of the costs, some of the lack of efficiency in the market, I think is huge.鈥�
Crowther suggested that firms should work to create 鈥渟ome kind of data ontology鈥�. He explained: 鈥淚nside your own organisations, you have hundreds of legacy systems as well. So how can you standardise an API down to those platforms? A single source and common data ontology gives you more capability.
鈥淐reating some kind of data ontology where they can communicate over the APIs is undoubtedly the best way.鈥�
Lewis agreed with Crowther, observing that: 鈥淐ompetition is great. Interoperability is reality.鈥�
Providing a Saudi Arabia perspective on technology in the Middle East, Abdullah Alghamedi, section head of securities services at SNB Capital, highlighted the importance of technology for the country. However, he indicated that there are 鈥渕any options for systems鈥� and so 鈥渢he complexity around securities lending may seem challenging鈥�.
In his eyes, the market needs education for the local participants to understand: what the different systems are and how participants can benefit from these systems to grow their business and provide more scalability.
鈥淲e see a system for collateral management, a system for post-trade and trading platforms 鈥� having these different systems could be confusing for a market that didn't have these capabilities just three years ago. So we need to have some sort of education on the business cases of these systems for the local markets,鈥� he added.
Rounding off the discussion, Geggus highlighted that 鈥渆very single year鈥� the market sees the appearance of more vendors and technology solutions. And while this is a 鈥渇antastic thing鈥�, the industry does not have unlimited resources to onboard 鈥渆very single bit of technology鈥�.
In the end, value of investment is key. He concludes: 鈥淲e've been in a bit of a flux over the last 10 years, where there's been more platforms coming forward, there's been more investment into technology, and I think that will carry on. But at the same time, there'll be more scrutiny looking at the analysis of the return on investment of these technology solutions.鈥�
The future of securities finance in the Middle East
With all the excitement and enthusiasm surrounding the burgeoning Saudi securities finance market at this year鈥檚 Middle East Symposium, the panel entitled 鈥楴avigating the Future of Middle East 兔子先生Finance鈥�, looked at some of the challenges the region faces, and what the next few years may have in store.
As the region as a whole pushes towards developing its capital markets, the Kingdom sees its Vision 2030, and the regulatory changes it has brought about over the past few years, in many ways driving the market, suggested Ross Bowman, global head of client management securities lending and repo at BNP Paribas鈥� 兔子先生Services.
One interesting aspect in Saudi, Bowman noted, is that unlike many more established regions, where the secondary market drives activity, in KSA the primary market and IPOs have been generating interest and activity.
More broadly, international investment interest in the country is also growing. Alistair Griffiths, director of business development at the International 兔子先生Lending Association (ISLA), highlighted the fact that 鈥榳hat is happening in Saudi?鈥� is one of the top questions he gets asked.
Though Saudi Arabia is seen as having a securities finance market in its infancy, its central bank and sovereign entities have been participating internationally for decades, making much of their inventory available for securities lending on a global basis.
Simon Lee, managing director and head of business development for EMEA and APAC at eSecLending, reiterated this point, noting that the Gulf has been a key region for his firm for many years, and continues to be the focus on a number of fronts.
Ruth Ferris, senior director and head of Secured Financing for Asia and head of Secured Financing sales EMEA at MUFG Securities, emphasised that the success of securities financing across the Kingdom and the broader MENA region hinges on robust infrastructure, comprehensive systems and procedures, and a collaborative exchange of knowledge among onshore and offshore market participants to master the intricacies of the market."
Both this need for education and the importance of mobilising collateral were reiterated 鈥� from the agent lenders' perspective 鈥� by Andrew Stephen, executive director, buy-side trading services at J.P. Morgan, who also succinctly summed up the attitude of the local market 鈥� 鈥淭he energy is palpable!鈥�
The topic of onshore versus offshore supply was also a key theme of the panel 鈥� offshore being more established via the Kingdom鈥檚 longer-running securities finance market, while onshore is a newer, burgeoning aspect that both KSA and international institutions are looking to explore.
The problem, highlighted by a number of panellists, is that these practicalities of having an established market, with infrastructure in place, means that ease and speed to market still make offshore supply more appetising than onshore.
As Lee put it, though in theory market participants may be neutral in terms of where supply comes from, practically the time to market is a key factor 鈥� which may mean offshore supply being advantageous, depending on the institution concerned.
Moving on to the future of SBL in Saudi, and the challenges that may be faced, the panel once again reiterated the need for education and local expertise 鈥� working with local partners as the linchpin when operating in KSA.
This education, highlighted Bowman, is a two way street 鈥� established international players have a lot to offer the Saudi market, but also have a lot to learn from local players on how to work with, and within, the Kingdom.
Shariah compliance, the panel agreed, was a prime example of where greater knowledge and understanding on the international front would likely facilitate more interaction with markets in the Middle East.
Referencing best practices from the global market, Griffiths raised a key point 鈥� the Saudi market does not simply have to do exactly what other countries have done, but can instead pick the best of each that works for them.
This 鈥榖lank slate鈥� idea was touched on by a number of panels during the day. Whereas for much of the established securities finance markets globally, changing regulations and new technology are adopted within systems and structures that already exist 鈥� building on top of decades of prior laws, regulations, and once-new technologies that are now long-obsolete.
For Saudi Arabia however, and other markets in the Middle East, in many ways they are starting from scratch. There is no 鈥榣egacy debt鈥�. This means there is an opportunity for things to be set up with modern technologies and modern regulatory frameworks in-mind. Blockchain and distributed ledger technology (DLT), the panel indicated, is a perfect example where this could be the case.
Another area of potential opportunity 鈥� and one where Saudi is already differing from other markets 鈥� is the distribution of assets. What is effectively the retail market, noted one panellist, makes up a much larger proportion of supply in KSA than we see in established markets (though retail is growing elsewhere).
None of this process will be quick, and the Kingdom鈥檚 securities finance market still has a long way to go. As Bowman put it: 鈥淭his is a marathon, not a sprint.鈥�
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