Short Selling and Securities Lending in Saudi Arabia

In light of the Capital Market Authority’s endeavor to develop the financial market and apply the best international standards and practices, in order to make the market more stable and attractive for local and foreign investors, the Authority’s Board of Directors approved on March 15, 2017, the Securities Borrowing and Lending (SBL) Regulations and the Short Selling Regulations. However, the introduction of the regulations failed short of achieving the desired objectives of development of short-selling as a product in the market. Meanwhile, new development in the financial markets (explosive growth in the Exchange Traded Fund or ETF and inclusion of Saudi Stock Exchange in the global equity benchmarks) warranted changes in the regulations to make regulatory environment in the Kingdom of Saudi Arabia more competitive with respect to regional and global comparison. Accordingly, the Authority’s Board of Directors amended these regulations on 22 February 2021 and on 3 January 2022. The amendments included permitting short selling and lending securities for all investors in the market based on specific requirements. The amendments also included modifications related to the standards and requirements of these transactions. On 3 April 2022, the Saudi Tadawul Group launched a package of new enhancements to develop the post-trade services infrastructure and increase its efficiency, including an improved mechanism for short selling activities. Securities borrowing and lending and short selling are new concepts for a large number of investors in the Saudi market, which is largely dominated by retail investors. In order to increase investors’ knowledge of these products, we present this introductory guide to give a brief overview to our valued readers about the nature of these transactions.