Share Lending Agreement Template for Saudi Arabia

A Share Lending Agreement is a specialized financial contract that governs the temporary transfer of securities between financial institutions in Saudi Arabia. Under this arrangement, you lend securities to another party in exchange for collateral and agreed fees, with the borrower obligated to return equivalent securities at the contract's conclusion. This document ensures compliance with the Capital Market Authority's strict regulatory framework while facilitating essential market functions.

When do you need this document?

You need a Share Lending Agreement when your financial institution engages in securities lending activities within the Saudi market. This includes scenarios where you're providing liquidity as a market maker, covering settlement failures, or facilitating Shariah-compliant trading strategies. Investment banks commonly use these agreements to support their trading operations, while custodian banks employ them to optimize their clients' securities portfolios. The document becomes essential when you need to formalize lending arrangements with other licensed financial institutions, ensuring proper risk management and regulatory compliance throughout the transaction lifecycle.

Key legal considerations

Your Share Lending Agreement must address several critical legal elements to protect your institution's interests. Collateral provisions require careful structuring, including acceptable collateral types, margin requirements, and daily marking-to-market procedures. The agreement should clearly define your rights regarding corporate actions, dividend payments, and voting rights during the lending period. Default and termination clauses must specify remedies available to both parties, including forced buy-in procedures and loss allocation mechanisms. Fee structures need transparent calculation methods and payment schedules, while confidentiality provisions protect sensitive commercial information shared during the relationship.

Legal requirements in Saudi Arabia

Under Saudi Arabian law, your Share Lending Agreement must comply with the Capital Market Law and specific Securities Borrowing and Lending Regulations issued by the CMA. The agreement requires adherence to Shariah principles, ensuring all transaction structures avoid prohibited elements such as excessive uncertainty or interest-based arrangements. You must incorporate Edaa's settlement and custody requirements, as the central securities depository plays a crucial role in facilitating these transactions. The document should reference CMA licensing requirements for both parties and include mandatory reporting obligations to regulatory authorities. Additionally, your agreement must comply with Anti-Money Laundering regulations, requiring proper customer due diligence and transaction monitoring provisions to prevent financial crimes within the securities lending framework.