CMA waives sukuk, bonds trading commission to develop market

Bader Alissa, Manager, Debt Instruments Offering Unit, CMA

The Capital Market Authority (CMA) waived its share in sukuk and bonds trading commission to encourage sukuk and bond holders. This also comes in line with the market regulator’s strategic goal to develop the sukuk and debt instruments market in order to increase its attractiveness to issuers and investors, Bader Alissa, Manager, Debt Instruments Offering Unit, CMA, told Argaam.
 

The CMA will waive its share in sukuk and bonds trading commission starting from May 2023.
 

The CMA is always keen to review, develop and update all the rules and regulations governing capital market traders to facilitate investor access and create a world-class capital market with high transparency to fulfill investor aspirations and protect their rights.
 

From time to time, the authority launches several initiatives to develop the sukuk and debt instruments market to diversify financing sources for. Issuers in the capital market. Through these initiatives, the CMA also offers more investment options to investors, driving them to inject cash to enhance the market deepening. The authority seeks to raise the contribution to the debt instruments market to the Kingdom’s gross domestic product (GDP) to 20.1% by the end of 2023.
 

The official affirmed the CMA’s keenness to promote the capital market role in national economy by raise its attractiveness to local and foreign investments, and in meeting financing needs.
 

The CMA’s waiver of the sukuk and bonds commission was aimed at reducing charges for traders, which will in turn strengthen liquidity, raise competitiveness of the local market and expand the local investor base with regard to government debt issuances. 
 

The decision reiterates the CMA’s commitment to driving the activity of the secondary debt instruments market, and deeming this as long-term obligations without any exception.
 

The market regulator is hopeful that this decision will contribute to motivating issuers to list the Sukuk and bonds denominated in the local currency on the Saudi debt market, and encourage investors to trade these instruments. 
 

The decision to waive commission builds on the exemptions and changes in the financial consideration of trading debt instruments in the last 14 years.  

The capital market witnessed an increase in the funds raised from domestic Sukuk and bonds issuances to SAR 48 billion. In addition, the sukuk and bonds market contribution to the local GDP increased to 32% at the end of 2022. 

Further, Edaa activated the link with Euroclear, one of the global depository centers specialized in post-trading services, which would contribute to expanding investor base. This aims to fulfill the domestic debt financing requirements and achieve the strategic objectives of the Financial Sector Development Program within the framework of supporting the development of the secondary market, by increasing the liquidity of domestic government debt instruments and attracting more foreign funds.  

This enabled foreign investors to directly invest in non-convertible debt instruments in the Sukuk and Bonds Market. 

The debt instruments, as explained by Alissa, are tradable securities issued by companies, governments, public bodies, and institutions to secure the necessary liquidity to finance their needs. 

In the capital market, the debt instruments are issued in the form of sukuk or bonds. They are structured to cater for issuer needs. The debt instruments can be issued with different terms that range between one year, or more or less, the official added. 

The importance of debt instruments for an issuer lies in providing the necessary liquidity to meet the required financing needs. It is also a financing instrument that has higher flexibility, compared to bank financing, as it can be issued in different forms and terms and under more flexible contractual terms. In addition, the cost of finance through the issuance of debt instruments is usually lower compared to bank loans. 

Meanwhile, debt instruments are important for an investor as they entail diversifying the risks of investment portfolios, as the risks of investment in debt instruments are generally low. They serve as an effective means of saving, due to the low investment risk, along with the possibility of predicting the related periodic returns. In addition, they enable investors to balance assets and liabilities of banks, insurance companies and pension funds.