Digital and Traditional Securities Integration: The Convergence Roadmap for Saudi Capital Markets

Saudi Arabia’s capital markets are following a deliberate convergence path where tokenized and conventional securities will ultimately trade on unified infrastructure. The CMA’s regulatory roadmap, published in the Digital Assets Framework, targets full integration by 2028 — eliminating the regulatory distinction between tokenized and conventional securities. Tadawul’s integration roadmap positions the digital securities platform not as a separate market, but as an infrastructure upgrade to the existing $2.7 trillion exchange.

Convergence Vision

The convergence vision operates on a fundamental principle: the settlement technology (conventional book-entry versus DLT) should be an implementation detail, not a regulatory distinction. A Saudi government sukuk tokenized on blockchain should be functionally equivalent to a conventional sukuk from the investor’s perspective — same legal rights, same regulatory protections, same trading access.

This approach differs from jurisdictions that maintain permanent separation between digital and conventional securities markets, including the UAE (VARA-regulated digital assets remain distinct from SCA-regulated securities), Singapore (MAS maintains separate licensing for digital payment tokens and capital markets products), and Hong Kong (SFC’s virtual asset framework operates alongside but separate from the conventional securities regime). The CMA has explicitly stated that long-term parallel market structures create inefficiency and fragmentation, and that Saudi Arabia’s goal is a single, unified capital market infrastructure with DLT as the underlying settlement technology.

Integration Phases

Phase 1: Parallel Operation (2024-2026 — Current)

Digital securities trade on Tadawul’s dedicated digital securities platform alongside (but separate from) the conventional Tadawul market. Key characteristics:

• Separate order books for digital and conventional securities
• Different settlement cycles (T+0 for digital, T+2 for conventional)
• Same CMA regulatory framework with digital-specific supplements
• Same market surveillance systems monitoring both markets
• Broker-dealers can participate in both markets through a single license

Phase 2: Interoperability (2027)

Planned infrastructure enhancements to enable cross-market operations:

• Unified order book for dual-listed securities (securities available in both tokenized and conventional form)
• Investor choice of settlement modality (T+0 DLT or T+2 conventional) for the same security
• Automated conversion between tokenized and conventional forms of the same security
• Single Edaa register spanning both modalities
• Cross-market arbitrage monitoring

Phase 3: Unified Infrastructure (2028 target)

Full convergence objectives:

• Single trading platform for all securities, with DLT-based settlement as the default
• Elimination of the “digital asset” regulatory classification — all securities are simply “securities” regardless of settlement technology
• Conventional book-entry settlement maintained as a legacy option during transition
• CMA licensing categories simplified (digital asset-specific licenses merged into standard categories)
• Sharia compliance certification process unified across tokenized and conventional instruments

Technical Integration Challenges

Dual Register Management

During the transition period, Edaa must maintain synchronized registers across both modalities. For securities listed in both tokenized and conventional form, Edaa must ensure:

• Total shares outstanding remain consistent across both registers
• Corporate action entitlements are calculated correctly regardless of settlement modality
• Conversion between modalities (tokenized to conventional and vice versa) is reflected instantaneously in both registers
• Regulatory reporting aggregates holdings across modalities

Settlement Cycle Harmonization

The T+0 versus T+2 settlement cycle difference creates potential for settlement arbitrage and operational complexity. Integration options under evaluation:

1. Universal T+0: Migrate all securities to T+0 atomic settlement — the most transformative option but requiring complete infrastructure overhaul
2. Elective T+0: Maintain T+2 as default but allow participants to opt in to T+0 settlement — preserves backward compatibility but creates operational complexity
3. T+1 intermediate step: Reduce conventional settlement to T+1 (as the US market did in 2024) before moving to T+0, reducing the transition gap. The CMA has indicated a preliminary preference for Option 1 (Universal T+0), noting that interim solutions create operational complexity without delivering the full benefits of DLT-based settlement. However, the final decision will be informed by the Phase 2 interoperability experience and market participant feedback through the Industry Advisory Group.

Investor Experience

Investors must experience seamless access regardless of the underlying settlement technology:

• Brokerage platforms must present tokenized and conventional securities identically
• Account statements must aggregate holdings across modalities
• Dividend and distribution payments must be delivered through consistent channels
• Investor protection and complaint resolution must be modality-agnostic

Regulatory Convergence

The CMA’s regulatory convergence plan involves:

License Simplification: By 2028, the 7 digital asset-specific license categories will be merged into the existing CMA license categories. A “digital asset custody” license will simply become a feature of the standard custody license, and a “digital asset trading platform” license will be subsumed into the exchange operator license.

Disclosure Harmonization: The 14 digital asset-specific disclosure requirements will be integrated into the standard CMA disclosure framework, with technology-specific disclosures retained only where they provide material information (smart contract governance, blockchain protocol details).

Investor Classification: The current tiered investor access restrictions for digital securities will be phased out as the market matures and investor familiarity with tokenized instruments increases. The CMA’s target is equal access for all investor categories by 2028.

Market Structure Implications

Convergence will have significant market structure effects:

Liquidity Consolidation: Eliminating separate order books for tokenized and conventional forms of the same security concentrates liquidity, reducing bid-ask spreads and improving price discovery.

Cost Reduction: A single unified infrastructure eliminates the duplicative costs of operating parallel settlement systems, estimated at SAR 100-200 million annually across all market participants collectively.

International Competitiveness: Unified infrastructure simplifies access for international investors, reducing the operational complexity that currently deters some global institutions from participating in Saudi digital securities markets.

Innovation Enablement: Unified infrastructure enables innovation that spans the entire capital market — for example, tokenized index products that include both conventional and currently-tokenized securities, or fractional trading of any listed security regardless of its original issuance format.

Broker-Dealer Impact and Readiness

The convergence is unfolding alongside a broader capital markets opening: as of February 1, 2026, the CMA abolished the Qualified Foreign Investor (QFI) concept, granting all categories of foreign investors — including retail — direct access to Tadawul for the first time. Foreign holdings surged to SAR 376.94 billion ($100.52 billion) in January 2026, reinforcing the urgency of building unified infrastructure that serves both domestic and international participants seamlessly. The convergence directly affects the 63 broker-dealers licensed by the CMA to operate on Tadawul:

Technology Investment: Each broker-dealer must upgrade its order management system, client-facing trading platforms, and back-office settlement systems to support both conventional and DLT-based settlement. Tadawul estimates the average technology investment per broker at SAR 3-8 million, with larger brokers spending up to SAR 25 million. Tadawul is providing API development kits and test environments to reduce integration costs.

Staff Capabilities: Broker-dealers must develop internal expertise in DLT operations, digital asset custody, smart contract risk assessment, and AML/CFT for blockchain transactions. The CMA’s licensing framework requires designated compliance officers with digital asset certification. Fintech Saudi is coordinating industry training programs to build these capabilities across the broker-dealer community.

Client Communication: Broker-dealers bear primary responsibility for explaining the convergence to their client bases. The CMA has published client communication guidelines ensuring that investors understand the practical implications: their securities holdings remain unchanged, but the underlying settlement technology is upgrading. Account statements, tax reporting, and corporate action processing will continue through the same channels.

Competitive Dynamics: The 12 broker-dealers already connected to the digital securities platform have a significant first-mover advantage. These brokers have operational experience with T+0 settlement, digital asset custody, and blockchain analytics — capabilities that will become table stakes for all brokers upon full convergence. The remaining 51 brokers face a competitive urgency to build digital capabilities or risk losing market share.

International Benchmarking

Saudi Arabia’s convergence approach can be benchmarked against international peers:

Switzerland (SIX Digital Exchange): SIX SDX operates as a separate digital securities exchange alongside the conventional SIX Swiss Exchange. Switzerland has not announced a convergence timeline, maintaining the parallel market structure indefinitely. Saudi Arabia’s convergence approach is more ambitious, targeting elimination of the dual-market structure.

Singapore (SGX Digital): Singapore Exchange has integrated limited DLT-based settlement for specific asset classes but has not announced full convergence. Saudi Arabia’s phased approach (parallel to interoperability to unified) provides a clearer roadmap than Singapore’s incremental approach.

European Union (DLT Pilot Regime): The EU’s DLT Pilot Regime allows temporary DLT-based trading and settlement within regulatory sandboxes, but the regime expires in 2026 with no clarity on permanent framework. Saudi Arabia’s permanent, production-grade approach provides greater certainty for market participants.

Hong Kong (HKEX Digital): HKEX has launched tokenized bond trading but maintains separation from the conventional exchange. Hong Kong has not announced convergence plans, focusing instead on cross-border interoperability with mainland Chinese exchanges.

Saudi Arabia’s convergence vision is the most comprehensive globally — no other major exchange has committed to full replacement of conventional settlement with DLT-based settlement within a defined timeline. This ambition carries both upside (global leadership positioning, cost reduction, innovation enablement) and risk (execution complexity, potential disruption during transition).

Governance and Decision Framework

Convergence governance operates through a multi-stakeholder framework:

Capital Markets Digital Transformation Committee: A joint CMA-SAMA-Tadawul-Edaa committee that meets monthly to review convergence progress, approve phase transition decisions, and resolve cross-institutional coordination issues. The committee reports to the Council of Economic and Development Affairs (CEDA), the highest economic policy body in Saudi Arabia.

Industry Advisory Group: A 15-member group comprising broker-dealers, custodians, issuers, and institutional investors that provides market participant input on convergence design decisions. The advisory group has been instrumental in shaping the settlement cycle harmonization approach and the investor experience requirements.

Technical Standards Working Group: A Saudi Blockchain Lab-coordinated group that develops and maintains the technical specifications for interoperability between conventional and DLT systems. Working group outputs include API standards, data format specifications, and security testing protocols.

Risk Assessment and Contingency Planning

The convergence program includes comprehensive risk assessment:

Technology Migration Risk: The migration of SAR 6-10 billion in daily conventional trading volume to DLT infrastructure carries inherent technology risk. The mitigation strategy includes parallel operation (both systems running simultaneously during transition), fallback procedures (ability to revert to conventional settlement within 4 hours), and phased migration (moving asset classes incrementally rather than simultaneously).

Market Disruption Risk: The transition from T+2 to T+0 settlement fundamentally changes market microstructure. Trading strategies that rely on the T+2 settlement window (such as short-selling and securities lending) must adapt. The CMA has established a Transition Advisory Panel that will publish guidance for market participants on adapting trading and risk management practices.

International Investor Concerns: Some international institutional investors may be uncertain about the implications of convergence for their Saudi securities holdings. The CMA’s international cooperation framework includes dedicated communication channels with major global custodians (State Street, BNY Mellon, JP Morgan, Citibank) to ensure continuity of international investor service throughout the convergence process.

Regulatory Arbitrage Risk: During the interoperability phase (2027), securities available in both tokenized and conventional forms could create arbitrage opportunities driven by settlement cycle differences rather than fundamental value. The CMA’s cross-market surveillance framework specifically addresses this risk with algorithms designed to detect and flag settlement-cycle arbitrage strategies.

Cost Overrun Risk: The SAR 200-500 million estimated infrastructure investment for the pilot period may escalate as the program scales. The CMA has established a Technology Investment Fund, financed through industry levies, to ensure that convergence costs do not create financial barriers for smaller market participants.

The integration of digital and traditional securities infrastructure represents the CMA’s most ambitious capital markets infrastructure project since the creation of Tadawul itself. The $2.7 trillion Tadawul exchange handling an average of SAR 6-10 billion in daily conventional trading volume will eventually operate entirely on DLT-based settlement infrastructure. Success will position Saudi Arabia’s capital markets among the most technologically advanced globally, supporting the Vision 2030 objective of establishing the Kingdom as a top-10 global financial center and reinforcing the Kingdom’s role as a leading GCC digital securities hub.

Saudi Arabia’s FATF membership reinforces the convergence program by ensuring that the unified infrastructure meets international anti-money laundering standards. The FATF’s 2025 updated guidance on virtual assets specifically addresses hybrid settlement environments, and the CMA’s convergence design incorporates these standards from inception rather than retrofitting compliance onto legacy infrastructure. This compliance-by-design approach reduces long-term regulatory risk and ensures that the unified platform meets the requirements of international institutional participants from day one.

For capital markets integration inquiries: info@sauditokenisation.com