His Excellency the Governor of the Saudi Arabian Monetary Authority "SAMA" Dr. Ahmad bin Abdul Karim Al-Kholifey inaugurates today in Riyadh the National Center for Registration of financial derivative data, which is concerned with the preservation of data for unlisted derivative contracts, during a ceremony organized by the Saudi Credit Bureau "SIMAH".
Al-Kholifey said in a speech on this occasion, "the unlisted financial derivative markets in central platforms contributed to the global financial crisis in 2008. Given that, the contracts were bilateral between the client and the financial institution, and that they were flexible in their terms, provisions and structures, which is what caused Great concern about credit risk to counterparties to financial institutions. In addition it reduced the ability of market participants - most of them banks - to develop sufficient knowledge of activities and centers in the market has declined. This had weakened their ability to better assess potential risks of their operations, and then take appropriate measures to manage them in a way that contributes to the overall health of the financial system. He added: As a result, improving the level of transparency and reducing credit risks for counterparties to financial institutions in unlisted derivative contracts becomes a major focus in supporting the establishment of a solid financial market structure. The G20 had adopted in 2009 in Pittsburgh a trend that all unified contracts for financial derivatives not listed on trading platforms or in electronic trading platforms should be traded, as appropriate, and be cleared from central clearing centers, and also must inform the trading data archiving centers of All financial derivatives contracts are outside the stock exchange".
Al-Kholifey indicated that SAMA has introduced a system for licensing trading data centers that requires meeting the governance and operating standards recommended by the Payments and Infrastructure Markets Committee (CPMI) and the International Organization of Securities Authorities (IOSCO). This includes standards related to governance, market transparency and data availability, Operational reliability, access and sharing, data protection, record keeping, communication procedures and standards. He pointed out that SIMAH obtained the first license to establish and operate the first national center for registering financial derivatives; it came after fulfilling the requirements issued by SAMA.
The Governor continued, "Although the financial markets in the Kingdom are relatively small in terms of the number of products, their complexity and the diversity of dealers, yet SAMA constantly interested on enhancing the transparency of financial derivative markets not included in central platforms. In addition, we believe in the benefits of creating an organized market sufficient for trading. We are also, aware of the need to achieve the correct balance in regulation, as the size of the Kingdom's markets and its promising future provides us with a favorable opportunity to develop and shape them on a sound basis, despite the availability of some challenges. Al-Kholifey explained that the purpose of financial derivatives is to provide risk management tools that play an important role in the stability of financial markets. In the event that very demanding requirements are imposed, these derivatives may become very expensive. So the choice was made to start with the most common products such as interest rate derivatives and foreign exchange derivatives, which constitute more than 90 percent of the traded derivatives, provided that the requirements for reporting other less traded products, such as equity derivatives, credit derivatives, and commodities derivatives, are to be implemented in the near future.
With respect to the financial market infrastructures such as: trading data storage centers, central clearing centers, online trading platforms, etc.), the governor confirmed that there is a great scope for its development, which is what SAMA and other local regulatory bodies must work with the other relevant government entities to develop existing relevant laws and regulations. He continued: The market for the unlisted financial derivatives is global in nature, yet each country sets its regulations according to their local needs, which led to the occurrence of complications for entities and transactions related to more than one system. Nevertheless, we realize the need to standardize standards worldwide, and we see that the framework for trading data centers in the Kingdom has sufficient flexibility to conform to relevant international standards and practices.
Revealing in this regard that the Kingdom is among the first few countries that have achieved the commitments of the G20 related to reporting financial derivatives outside the stock market, expressing thanks and appreciation to all participants in the work teams from SAMA, SIMAH, and market dealers from banks for this important achievement For the financial sector.
For his part, the Chairman of the Board of Directors of the Saudi Bureau "SIMAH" Saeed bin Muhammad Al-Ghamdi expressed his thanks and appreciation to His Excellency the Governor for the inauguration of the National Center for the Registration of Financial Derivatives, which is one of the most important national initiatives implemented by SIMAH. For which it has been keen since its establishment in 2002 and then its launch in 2004 to fulfill its national roles by collecting and exchanging credit information about consumers, as well as providing an effective and reliable financial infrastructure to ensure sustainable economic growth, increasing the confidence of lenders and investors, and reducing the asymmetry, and reduce the rates of default.
For his part, CEO of "SIMAH" Suwaid bin Muhammad Al-Zahrani appreciated the presence of His Excellency the Governor of the Saudi Arabian Monetary Authority and his inauguration of the National Center for the Registration of Financial Derivatives. That's what SIMAH seeks to make it a financial platform with international specification to stand on the data of non-listed derivative contracts to keep pace with international policies and standards for infrastructure principles, and to achieve more financial stability, enhance transparency, and reduce systemic financial risks, in line with the goals of the Kingdom's 2030 vision, which aims in its entirety to Developing a diversified and effective financial sector to support the development of the national economy, diversifying its sources of income, and developing and deepening financial sector institutions. He pointed out that system of individuals and companies - which are an advanced credit information exchange systems in "SIMAH" - issued more than (104) million credit reports to the Saudi market from 2004 until December 31, 2019 that enabled SIMAH members numbered about (342) to learn about the credit behavior of their clients.
Al-Zahrani emphasized that SIMAH covered over the past (15) years many major sectors, as the total number of consumers in the database since 2004 until the end of the fourth quarter of 2019 reached more than (17) million consumers. When the total number of credit ratings reached more than (13) million credit ratings by the end of the fourth quarter of 2019. Also, the total credit accounts as of the end of 2019 reached more than (63) million credit accounts. These figures unquestionably reveal the development of the credit information industry in the Saudi market, and the leadership of SIMAH as the first credit information company concerned with providing the best products And services to the individual and corporate sector. "