Netting is the primary way of reducing risk in financial market contracts, enhancing stability and deepening liquidity. However, the legal framework and enforceability of netting arrangements vary across different jurisdictions, especially in the Middle East and North Africa ("MENA") region, where there are diverse legal systems and regulatory regimes. In this article, we provide an overview of the netting regulations and practices in nine MENA jurisdictions: KSA, UAE, Bahrain, Qatar, Oman, Kuwait, Jordan, Egypt and Iraq. We highlight the key features, challenges, and implications of netting agreements in each country, and offer some practical guidance and insights for market participants.
Kingdom of Saudi Arabia Introduction
The Saudi Central Bank ("SAMA") has issued a new regulation titled "Close-out Netting and related Financial Collateral Regulation" (the "KSA Netting Regulations") The KSA Netting Regulations, effective from the 17th of February 2025, establishes a comprehensive framework for the enforceability of netting agreements and related financial collateral arrangements, particularly in the context of bankruptcy proceedings. SAMA has issued the KSA Netting Regulations pursuant to Article 214 of the KSA Bankruptcy Law determining the contracts and transactions that are exempted from the provisions of the KSA Bankruptcy Law especially the restrictions on set-off.
In addition, the Capital Market Authority ("CMA") has recently published the "Draft Regulatory Framework for Close-Out Netting for Capital Market Institutions" inviting market participants' feedback on the draft framework by 26 March 2026.
Scope of Application
The KSA Netting Regulations applies to netting agreements and related financial collateral arrangements connected with one or more Qualified Financial Contracts ("QFCs"). These contracts must involve at least one party under SAMA's supervision.
Key Definitions
The KSA Netting Regulations define some key terms, including:
- Netting: Broadly includes – of any present or future payment or delivery obligations or entitlements or determination of close out value and the net amount under or in connection with one or more Qualified Financial Contracts
- Netting Agreement: Broadly, this is an agreement that provides for the netting of payment or delivery obligations arising from one or more Qualified Financial Contracts.
- Collateral Arrangements: Collateral arrangements including, over cash, securities, commodities, letters of credit or other movable security created under the Movable Assets Security Law.
- Qualified Financial Contract ("QFC"): This definition includes a wide range of financial agreements such as a broad range of derivatives contracts, securities and commodities contracts (including repo and lending contracts), Shari'ah compliant contracts which is economically similar to these contracts and any agreement, contract or transaction designated as a QFC by SAMA under the Netting Regulation, as detailed in Annex (1) of the KSA Netting Regulations.
- Multi-Branch Netting: Multi-branch netting is covered where one party is not based in KSA and has entered into a QFC through its branch or agency in KSA.
Objectives of the Regulation
The primary objective is to ensure the enforceability of netting agreements and related financial collateral arrangements both outside and within bankruptcy proceedings.
Key Provisions
The KSA Netting Regulations provide for:
Enforceability Provisions
- Qualified Financial Contracts: QFCs are enforceable and valid according to their terms, regardless of any changes in circumstances post-agreement. Specifically, netting agreements incorporated in the QFCs are valid even once procedures under the KSA Bankruptcy Law (e.g., protective settlement, restructuring, liquidation) have commenced.
- Financial Collateral Arrangements: Where collateral arrangements are put in place to secure the obligations of under a QFC, such arrangements including security over cash, securities or other movables are enforceable even upon the commencement of procedures under the KSA Bankruptcy Law.
- Multibranch Netting Agreements: These agreements are enforceable against a Bankrupt Local Branch, with specific limitations on the liabilities and rights of both the Non-Bankrupt Party and the Foreign Multibranch Party.
General Provisions
- Enforceability Against Bankrupt Parties: Netting agreements are enforceable against bankrupt parties and their guarantors or collateral providers, without being stayed or limited by bankruptcy proceedings.
- Systemically Important Financial Institutions: However, this will not affect SAMA and CMA's authority under the Law of Systemically Important Financial Institutions, to stay the right to terminate, liquidate or accelerate any present or future payment or delivery obligations in connection with Qualified Finance Contracts to which the netting agreement applies.
- Limitation on Payment Obligations: After the initiation of bankruptcy proceedings, the obligation is to pay a net amount as determined by the netting agreement.
- Protection Against Bankruptcy Laws: The KSA Netting Regulations ensure that the provisions of a netting agreement are not affected by bankruptcy laws that limit set-off or netting rights.
Conclusion
The new regulations by SAMA provide a robust legal framework for the enforceability of netting agreements and financial collateral arrangements, offering greater certainty and protection for parties involved in QFCs. Entities under SAMA's supervision should review their existing agreements and ensure compliance with the new regulation to benefit from its provisions.
United Arab Emirates
Within the UAE, there are three jurisdictions with distinct regimes governing netting: the UAE mainland, where Federal laws apply; and the Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”), which each have standalone legislation and netting frameworks that are generally netting-friendly.
UAE Mainland
Netting in the UAE Mainland
As of 2 January 2025, a Federal Law No 31 of 2024 regarding Netting (the “UAE Netting Law”) came into effect, repealing the old netting law, Federal Decree Law No. 10 of 2018 (the “old netting law”). While the old netting law marked the regulation of netting for the first time in the UAE mainland, the UAE Netting Law now reflects the latest market developments and best practices, as well as addressing some of the concerns and queries that arose under the old netting law.
Qualified Financial Contracts
Article (5) of the UAE Netting Law provides the contracts, transactions or procedures that constitute Qualified Financial Contracts (“QFCs”), which are similar to those under the old netting law, including but not limited to: (i) all types of swaps in relation to currencies, interest rate, basis rate and commodities; (ii) foreign exchange, securities or commodities transactions; (iii) cap, collar or floor transaction; (iv) forward rate agreements; (v) currency or interest rate future/ option; (vi) different kind of derivatives such as credit, energy, bandwidth, freight, emissions, economic statistics, property index derivatives; (vii) securities contract, commodities related to contract, collateral arrangements; (viii) agreements to clear or settle securities transactions; and (ix) any derivative such as swap forward, option, contract for differences. The UAE Netting Law has expanded the scope of QFCs that can be netted to include new asset classes in line with market trends, including derivates linked to digital assets, carbon credits, and sukuk-linked products.
Pursuant to the Netting Law, the Central Bank of the UAE now has the authority to designate (or revoke the designation of) any financial agreement, contract or transaction as a QFC in coordination with the Securities and Commodities Authority and other relevant regulators.
Netting Definition and Mechanisms
Netting is defined in the UAE Netting Law as the occurrence of any or all of the following: (a) the termination, liquidation, or acceleration of payments or obligations under a QFC, (b) the calculation and conversion of close-out or termination values into a single currency, (c) the determination and payment of the net balance of these values, and (d) the obligation of one of the parties to the netting agreement to pay, or continue payment of, the net balance as a result of entering into a transaction under which the net balance becomes due for payment directly or as part of the consideration for a specific asset or as a provision to pay damages related to the failure to implement that transaction.
Netting Agreements
An agreement is considered a netting agreement under the UAE Netting Law if: (a) it provides for the netting of current or future payments or obligations arising from QFCs between the parties, (b) it is a master agreement for the netting of amounts due under other netting agreements, (c) if it relates to collateral arrangements that are part of or apply to such agreements. A netting agreement also includes any agreement that is compliant with Islamic Shari'ah and has the same purposes as the above agreements, as well as any agreement that covers contracts or transactions that fall within the definition of QFCs.
Enforceability of Netting Agreement and QFCs
The UAE Netting Law generally provides that a netting agreement and QFC should be enforceable in accordance with its terms, including against an insolvent party, a guarantor, or a third-party security provider, even if such security provider becomes insolvent, superseding the provisions of Federal Decree Law No. (51) of 2023 Promulgating the Financial Reorganization and Bankruptcy Law.
The UAE Netting Law also provides protection for QFCs against prohibitions on aleatory contracts (Gharar) under any UAE law (which was formerly limited to the prohibition under Federal Law No. 5 of 1985 in the old netting law), including those related to gambling, betting, or lotteries. Under the UAE Netting Law, parties to a netting agreement are also prevented from claiming that a QFC is non-Shari'a compliant if they have confirmed Shari'a compliance at the outset of the contract, which provides clarification to a noteworthy ambiguity under the old netting law. While the UAE Netting Law is an important and positive development for the UAE derivatives market, it ultimately remains untested in the UAE courts.
Noteworthy Changes to the old netting law
In addition to the updated range of QFCs and increased protections against challenge under the UAE Netting Law, the UAE Netting Law also provides additional benefits, including (but not limited to):
- confirming that title transfer collateral arrangements relating to netting agreements should not be recharacterised as security interest arrangements, resolving a critical uncertainty under old netting law.;
- clarifying the applicability of the UAE Netting Law to parties such as supranational organisations, regional development institutions, and political units or subdepartments affiliated with local or central governments; and
- offering severability of provisions under a netting agreement relating to contracts, agreements or transactions other than QFCs, which allow such agreement to still be deemed a netting agreement only with respect to those contracts that fall within the definition of a QFC.
DIFC (Dubai International Financial Centre)
Netting in the DIFC
Netting is recognised in the DIFC pursuant to DIFC Law No. 2 of 2014 (“DIFC NettingLaw”). Article 3 of the DIFC Netting Law defines a netting agreement as (a) any agreement between two parties that provides for netting of present or future payment or delivery obligations or entitlements or obligations, or entitlements to make, receive or require payments or deliveries, arising under or in connection with one or more qualified financial instruments entered into under the agreement by the parties to the agreement, (b) any master agreement between two parties that provides for netting of the amounts due under two or more master netting agreements; and (c) any collateral arrangement related to or forming part of one or more of the foregoing.
Qualified Financial Instruments
Qualified financial instruments (“QFIs”) are defined in the DIFC Netting Law “as any financial agreement, contract or transaction pursuant to which payments or obligations are to be performed, or titles to certain commodities or assets are to be transferred, for consideration at certain agreed time or within a certain period of time whether or not subject to any condition or contingency, or pursuant to which obligations to make payments or deliveries or title transfer over commodities or assets are to be entered into or incurred.
The DIFC Netting Law provides a non-exhaustive list of QFIs that derive value from underlying assets or commodities including, but not limited to, any asset such as currency, equity, index, interest rate, bond or debt security index, property index, and other forms of derivative products. QFIs also cover (without limitation) spot, future, forward or other securities or commodities transaction, commodities contract (i.e. commodities repurchase, or reverse repurchase agreement, a commodities lending agreement or commodities buy/sell back agreement), collateral agreement and/or and Shari'a compliant contracts or undertakings that have a similar economic effect to any of the above.
The DIFC Netting Law also gives the Dubai Financial Services Authority the power to designate or revoke any agreement, contract or transaction as a QFI by written and published notice.
Financial Collateral Arrangements
Separate to the DIFC Netting Law, Part 8 of DIFC Law No. 4 of 2024 (the “DIFC Law of Security”) regulates the creation, effectiveness, priority and enforcement of security rights in financial collateral, which are defined as money credited to a bank account, financial property held in an account with an account provider, or a receivable arising from close-out netting arrangements. Part 8 (Financial Collateral Arrangements) of the DIFC Law of Security provides for two types of financial collateral arrangements: title transfer collateral arrangements (which take effect in accordance with their terms) and security financial collateral arrangements (which can be made effective against third parties by way of control as opposed to registration). The Law of Security allows a secured creditor to exercise a right of use in respect of the financial collateral and to enforce the security right by collecting, disposing of or appropriating the financial collateral upon the occurrence of an enforcement event, without any formal act or court intervention.
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