Saudi Arabia Quietly Halts Sale of Options Contracts On Riyal Forwards

The oil rich kingdom is apparently worried crashing energy prices are driving speculators to bet against its ability to maintain

Despite the fact that no official word was said in public, Saudi Arabian authorities are apparently already trying to take action against speculators who bet against its ability to maintain the riyal’s USD peg in an environment of cheap energy prices.

In a meeting this Monday the Saudi Arabian Monetary Agency (SAMA) has issued a directive which applies both to Saudi banks and local branches of international banks, to stop the sale of options contracts on riyal forwards. This is according to five sources familiar with the matter who spoke with the financial news service Bloomberg.

SAMA’s last official word on the matter was from last Monday when its governor acknowledged the speculations but stopped at saying they will maintain the peg and didn’t go as far as banning any financial instruments. The SAMA Governor said: “Of late we have observed volatility in the USD/SAR forward market due to the mispricing linked to market operators’ misperception about Saudi Arabia’s overall economic backdrop. Factors affecting the forward market are largely speculative in nature.

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Saudi Arabia’s key economic and financial indicators are stable, as reflected by its net creditor position with a sound and resilient banking system. I would like to reiterate our official position that Saudi Arabian Monetary Agency (SAMA) will uphold its mandate of maintaining the peg at SAR 3.7500 per USD, backed up by the full range of monetary policy instruments including its foreign exchange reserves.”

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