Saudi Central Bank Circular Re. Principles on Trade Repositories

Saudi Central Bank (SAMA)

Principles on Trade Repositories

February 2024

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Table of Content

1. Introduction ................................................................................................................................. 3
2. Definitions................................................................................................................................... 3
3. Scope and level of application ................................................................................................... 4
4. Principle 1: Legal basis .............................................................................................................. 5
5. Principle 2: Governance ............................................................................................................. 5
6. Principle 3: Framework for the comprehensive management of risks. ........................................ 7
7. Principle 4: General business risk. ............................................................................................. 8
8. Principle 5: Operational risk. ..................................................................................................... 9
9. Principle 6: Access and participation requirements. ................................................................... 12
10. Principle 7: Tiered participation arrangements. ....................................................................... 14
11. Principle 8: FMI links. ............................................................................................................. 15
12. Principle 9: Efficiency and effectiveness. ................................................................................ 15
13. Principle 10: Communication procedures and standards. ......................................................... 16
14. Principle 11: Disclosure of rules, key procedures, and market data. ........................................ 16
15. Principle 12: Disclosure of market data by trade repositories. ................................................. 18
16. Asset Classes............................................................................................................................. 21
17. Acceptance of Derivative Trade Data....................................................................................... 21
18. Retention of Derivative Trade Data.......................................................................................... 22
19. Separation of Functions............................................................................................................. 22
20. Outsourcing of Functions.......................................................................................................... 23
21. Keeping of Records................................................................................................................... 23
22. Provision of Records or Other Information.............................................................................. 24
23. Effective Date........................................................................................................................... 24

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1. Introduction 1.1. These Principles are issued by Saudi Central Bank (SAMA) in exercise of the powers vested upon it under its Law issued by the Royal Decree No. (M/36) on 11- 04-1442H, the Banking Control Law issued by the Royal Decree No. (M/5) on 22-02-1386H, and the rules for Enforcing its Provisions issued by Ministerial Decision No. 3/2149 on 14-10-1406AH.

2. Definitions 2.1. The following terms and phrases, where used in these Principles shall have the corresponding meanings, unless otherwise specified by SAMA:

SAMA: Saudi Central Bank.

Reporting Requirements: reporting requirements as prescribed in Trade Repository Reporting and Risk Mitigation Requirements for Over-the-Counter (OTC) Derivatives Contracts issued via SAMA circular No. 42056371 dated 1442/08/10 H.

Derivative Position Information: information about positions relating to Derivative Transactions reported in accordance with the Trade Repository Reporting Requirements.

Derivative Trade Data: includes Derivative Transaction Information and Derivative Position Information.

Financial Market Infrastructure (FMI): is defined as a multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives, or other financial transactions.

Linked Entities: any other derivative trade repositories, payment systems, central securities depositories, securities settlement systems, central counterparties and service providers (e.g. collateral management, portfolio reconciliation or portfolio compression service providers) with which the Trade Repository has operational and contractual arrangements in connection with the acceptance, retention, use, disclosure and provision of access to Derivative Trade Data.

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Trade Reporting Services: all services provided by the Trade Repository for the acceptance, retention, use, disclosure and provision of access to Derivative Trade Data, including any services for the acceptance, retention, use, disclosure and provision of access to Derivative Trade Data.

Non-Trade Reporting Services: refers to services other than Trade Reporting Services, and includes Ancillary Services.

Trade Repository (TR): an entity that is authorised by SAMA to operate as a repository of transaction data for Over-The-Counter (OTC) derivatives.

Participant: an Entity that is a party to an OTC derivative transaction.

Reporting Entity: an entity that is required to report Derivative Transaction Information or Derivative Position Information in accordance with the Trade Repository Reporting Requirements.

3. Scope and level of application 3.1. These Principles shall be applicable to any Trade Repository already approved by SAMA and operating in the Kingdom of Saudi Arabia and other relevant jurisdictions, where applicable.

3.2. A Trade Repository must adhere with all the relevant CPMI-IOSCO Principles for Financial Market Infrastructures (PFMI) applicable to a Trade Repository¹. In addition, the adherence should cover all PFMI in their entirety, including the headline and all the applicable Key Considerations (KC) of the PFMI, and any specific or additional rules and requirements as may be imposed by SAMA.

3.3. SAMA shall conduct onsite and offsite oversight activities on the Trade Repositor(ies), under its jurisdiction, taking into consideration its risk assessment on trade repositories.

¹ https://www.bis.org/cpmi/publ/d101a.pdf

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4. Principle 1: Legal basis. A Trade Repository should have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.

4.1. A Trade Repository should have a legal basis which provides a high degree of certainty for each material aspect of activities in KSA and other relevant jurisdictions, where applicable.

4.2. A Trade Repository should have rules, procedures, and contracts that are clear, understandable, and consistent with relevant laws and regulations.

4.3. A Trade Repository should be able to articulate the legal basis for its activities to SAMA, other relevant authorities, participants, and, where relevant, participants' customers, in a clear and understandable way.

4.4. A Trade Repository should have rules, procedures, and contracts that are enforceable in KSA and other relevant jurisdictions. There should be a high degree of certainty that actions taken by the Trade Repository under such rules and procedures will not be voided, reversed, or subject to stays.

4.5. Where a Trade Repository is conducting business in multiple jurisdictions, it should identify and mitigate the risks arising from any potential conflict of laws across jurisdictions.

5. Principle 2: Governance. A Trade Repository should have governance arrangements that are clear and transparent, promote the safety and efficiency of the FMI, and support the stability of the broader financial system, other relevant public interest considerations, and the objectives of relevant stakeholders.

5.1. A Trade Repository should have objectives that place a high priority on the safety and efficiency of the Trade Repository and explicitly support financial stability and other relevant public interest considerations.

5.2. A Trade Repository should have documented governance arrangements that provide clear and direct lines of responsibility and accountability. These arrangements should

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be disclosed to owners, SAMA, other relevant authorities, participants, and, at a more general level, the public.

5.3. The roles and responsibilities of a Trade Repository's Board of Directors should be clearly specified, and there should be documented procedures for its functioning, including procedures to identify, address, and manage member conflicts of interest. The board should review both its overall performance and the performance of its individual board members regularly.

5.4. The board of a Trade Repository should contain suitable members with the appropriate skills and incentives to fulfil its multiple roles. This typically requires the inclusion of non-executive board member(s).

5.5. The roles and responsibilities of management should be clearly specified. A Trade Repository's management should have the appropriate experience, a mix of skills, and the integrity necessary to discharge their responsibilities for the operations and risk management of the Trade Repository.

5.6. The board should establish a clear, documented risk-management framework that includes the Trade Repository's risk-tolerance policy, assigns responsibilities and accountability for risk decisions, and addresses decision making in crises and emergencies. Governance arrangements should ensure that the risk-management and internal control functions have sufficient authority, independence, resources, and access to the board.

5.7. The board should ensure that the Trade Repository's design, rules, overall strategy, and major decisions reflect appropriately the legitimate interests of its direct and indirect participants and other relevant stakeholders. Major decisions should be clearly disclosed to relevant stakeholders and, where there is a broad market impact, the public.

5.8. A Trade Repository must appoint a chief compliance officer responsible for reviewing compliance with applicable legislation and regulatory requirements, identifying and resolving conflicts of interest and completing and certifying an annual compliance report.

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5.9. The Trade Repository must establish, implement, maintain and enforce policies, procedures, systems and controls for monitoring and enforcing compliance by its employees and critical service providers with these Principles and any other applicable laws.

5.10. Without limiting paragraph 5.9 above, a Trade Repository must ensure that the arrangements, rules, procedures, policies, plans, systems and controls required by these Principles are reviewed, audited and tested periodically and after significant changes, to ensure compliance with these Principles.

5.11. A Trade Repository must establish and maintain sufficient and appropriate dedicated human, technological and financial resources to ensure that the Trade Repository operates at all times securely, efficiently and effectively.

5.12. A Trade Repository must at all times ensure its employees and managers are fit and proper, taking into account the experience, qualifications and skills necessary to perform their respective roles and responsibilities in the governance, management and operation of the Trade Repository.

6. Principle 3: Framework for the comprehensive management of risks. A Trade Repository should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks.

6.1. A Trade Repository should have risk-management policies, procedures, and systems that enable it to identify, measure, monitor, and manage the range of risks that arise in or are borne by the Trade Repository. Risk-management frameworks should be subject to periodic review.

6.2. A Trade Repository should provide incentives to participants and, where relevant, their customers to manage and contain the risks they pose to the Trade Repository.

6.3. A Trade Repository should regularly review the material risks it bears from and poses to other entities (such as other FMIs, settlement banks, liquidity providers, and service providers) as a result of interdependencies and develop appropriate risk-management tools to address these risks.

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6.4. A Trade Repository should identify scenarios that may potentially prevent the Trade Repository from being able to provide its critical operations and services as a going concern and assess the effectiveness of a full range of options for recovery or orderly wind-down. A Trade Repository should prepare appropriate plans for its recovery or orderly wind-down based on the results of that assessment. Where applicable, a Trade Repository should provide SAMA and other relevant authorities with the information needed for the purposes of resolution planning.

7. Principle 4: General business risk. A Trade Repository should identify, monitor, and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can continue operations and services as a going concern if those losses materialise. Further, liquid net assets should at all times be sufficient to ensure a recovery or orderly wind-down of critical operations and services.

7.1. A Trade Repository should have robust management and control systems to identify, monitor, and manage general business risks, including losses from poor execution of business strategy, negative cash flows, or unexpected and excessively large operating expenses.

7.2. A Trade Repository should hold liquid net assets funded by equity (such as common stock, disclosed reserves, or other retained earnings) so that it can continue operations and services as a going concern if it incurs general business losses. The amount of liquid net assets funded by equity that the Trade Repository hold should be determined by its general business risk profile and the length of time required to achieve a recovery or orderly wind-down, as appropriate, of its critical operations and services if such action is taken.

7.3. A Trade Repository should maintain a viable recovery or orderly wind-down plan and should hold sufficient liquid net assets funded by equity to implement this plan. At a minimum, the Trade Repository should hold liquid net assets funded by equity equal to at least six months of current operating expenses. These assets are in addition to the resources held to cover participant defaults or other risks covered under the financial resources principles. However, equity held under international risk-based

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capital standards can be included where relevant and appropriate to avoid duplicate capital requirements.

7.4. Assets held to cover general business risk should be of high quality and sufficiently liquid in order to allow the Trade Repository to meet its current and projected operating expenses under a range of scenarios, including in adverse market conditions.

7.5. A Trade Repository should maintain a viable plan for raising additional equity should its equity fall close to or below the amount needed. This plan should be approved by the board of directors and updated regularly.

8. Principle 5: Operational risk. A Trade Repository should identify the plausible sources of operational risk, both internal and external, and mitigate their impact through the use of appropriate systems, policies, procedures, and controls. Systems should be designed to ensure a high degree of security and operational reliability and should have adequate, scalable capacity. Business continuity management should aim for timely recovery of operations and fulfilment of the Trade Repository’s obligations, including in the event of a wide-scale or major disruption.

8.1. A Trade Repository should establish a robust operational risk-management framework with appropriate systems, policies, procedures, and controls to identify, monitor, and manage operational risks.

8.2. A Trade Repository board of directors should clearly define the roles and responsibilities for addressing operational risk and should endorse the Trade Repository operational risk-management framework. Systems, operational policies, procedures, and controls should be reviewed, audited, and tested periodically and after significant changes.

8.3. A Trade Repository should have clearly defined operational reliability objectives and should have policies in place that are designed to achieve those objectives.

8.4. A Trade Repository should ensure that it has scalable capacity adequate to handle increasing stress volumes and to achieve its service-level objectives.

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8.5. A Trade Repository should have comprehensive physical and information security policies that address all potential vulnerabilities and threats.

8.6. A Trade Repository should have a business continuity plan that addresses events posing a significant risk of disrupting operations, including events that could cause a wide-scale or major disruption. The plan should incorporate the use of a secondary site and should be designed to ensure that critical information technology (IT) systems can resume operations within two hours following disruptive events. The plan should be designed to enable the Trade Repository to complete settlement by the end of the day of the disruption, even in case of extreme circumstances. A Trade Repository should regularly test these arrangements.

8.7. A Trade Repository should identify, monitor, and manage the risks that key participants, other FMIs, and service and utility providers might pose to its operations. In addition, a Trade Repository should identify, monitor, and manage the risks its operations might pose to other Trade Repository or FMIs.

8.8. A Trade Repository must comply with SAMA Business Continuity Framework issued via SAMA circular 381000058504 dated 01/06/1438 H, and applicable national regulatory guidelines over Business Continuity, Outsourcing, Cybersecurity, IT Governance, and Data Privacy and must ensure that:

8.8.1. A Trade Repository's services are provided at all times in a secure, efficient and effective manner.

8.8.2. A Trade Repository have in place processes for regular review of whether the Trade Repository's operations are efficient and effective in meeting the requirements of participants, SAMA, and the markets it serves. These may include, for example, a review of its minimum service levels, operational reliability, cost-effectiveness pricing, and controls. Trade repository should also address IT operational risks as part of overall operational risk management through identifying and mitigating IT risks via mandating them to ensure control consideration from SAMA Information Technology Governance Framework issued via SAMA circular 43028139 dated 29/03/1443 H.

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8.8.3. Cyber security risks are managed effectively and that the Trade Repository's assets are protected. In this regard, a Trade Repository is also required to comply with SAMA Cyber Security Framework and applicable national Cybersecurity guidelines, and ensure effectiveness of its security controls through periodical evaluation.

8.8.4. A Trade Repository should define and develop data classification in organized categories based on the level of data sensitivity. A Trade Repository's data classification should ensure its confidentiality, integrity, and availability; Where access to data should provide based on need to know principles

8.8.5. A Trade Repository should implement adequate mechanism to ensure the privacy of the data collected throughout its lifecycle in the Trade Repository and protection of personal data in compliance with national laws and regulations.

8.8.6. For the purposes of integrity and cyber security of the Trade Repository, a Trade Repository must establish, implement, maintain and enforce policies, procedures, physical and electronic controls over its systems for accepting, retaining, using, disclosing and providing access to Derivative Trade Data designed to:

8.8.6.1. Maintain the integrity and confidentiality of Derivative Trade Data at all times during transmission between the Trade Repository, SAMA and Participants, and while retained in the Trade Repository; and

8.8.6.2. Prevent unauthorized use or disclosure of, or access to, Derivative Trade Data in line with business requirements based on the need-to-have or need-to-know principle.

8.8.7. SAMA may make a direction relating to Derivative Trade Data if a Trade Repository ceases to be authorised, including a direction requiring the Trade Repository to destroy or transfer to another Trade Repository or SAMA all records of the Derivative Trade Data over which the Trade Repository has control.

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8.8.8. A Trade Repository must report all incidents of disruption including IT and Cyber classified as "M