NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Saudi Stock Exchange Company (Tadawul" or the "Company") is a Saudi closed joint stock company registered in the Kingdom of Saudi Arabia under Commercial Registration number 1010241733 dated 2/12/1428 H (corresponding to 12 December 2007). The Company was established by the Royal Decree No. M/15 dated 01/03/1428 H (corresponding to 20 March 2007) and the Minister of Commerce and Industry resolution no. 320/k dated 1/12/1428 H (corresponding to 11 December 2007). As at 31 December 2020, the authorized, issued and fully paid-up share capital of the Company is SAR 1,200 Mn (31 December 2019: SAR 1,200 million) divided into 120 million shares (31 December 2019: 120 million shares) of SAR 10 each and is fully subscribed by the Public Investment Fund ("PIF").

The Company's main activity is to provide, create and manage the mechanisms of trading of securities, providing depository and registration of securities ownership, dissemination of securities information and engage in any related other activity to achieve the objectives as defined in the Capital Market Law.

These consolidated financial statements comprise the financial statements of Tadawul and its subsidiaries (collectively referred to as "the Group").

The Company's registered address is as follows:
6897 King Fahd Road - Al Olaya
Unit Number: 15
Riyadh 12211-3388
Kingdom of Saudi Arabia

Subsidiaries

Securities Depository Centre Company ("Edaa")

Capital Market Authority ("CMA") Board approved the formation of Securities Depository Centre Company ("Edaa") as a new Saudi joint stock company in the Kingdom of Saudi Arabia in accordance with the Capital Market Law issued by the Royal Decree no. M/30 dated 06/02/1424 H (corresponding to 22 March 2003). Edaa was registered as a Saudi joint stock company in Riyadh under Commercial Registration no. 1010463866 dated 11/27/1437 H (corresponding to 30 August 2016) with an authorized share capital of SAR 400 Mn divided into 40 million shares of SAR 10 each.

As at 31 December 2020 and 31 December 2019, the Company held 100% of the issued share capital of Edaa. The main objective of Edaa is to provide depository and registration of securities ownership and clearing services of securities.

Securities Clearing Center Company ("Muqassa")

The Company's Board of Directors in their meeting dated 30 October 2017 under a decision number 03-04-2017/04-04-2017 approved the formation of a new company, Securities Clearing Center Company ("Muqassa"). Muqassa was registered as a closed joint stock company in Riyadh under Commercial Registration number 1010935131 dated 02/06/1439 (corresponding to 18 February 2018) with an authorized share capital of SAR 600 Mn divided into 60 million shares of SAR 10 each.

As at 31 December 2020 and 31 December 2019, the Company held 100% of the issued share capital of Muqassa. The main objective of Muqassa is to provide, create and manage the mechanisms of trading of securities, providing settlement and clearing services of securities and engage in any other related activity to achieve the objectives as defined in the Capital Market Law.

Tadawul Advance Solution Company ("TASC")

The Company's Board of Directors in their meeting dated 19/04/2020 under a decision number 02-02-2020 approved the formation of a new company, Tadawul Advance Solutions Company ("TASC"). TASC was registered as a closed joint stock company in Riyadh under Commercial Registration number 1010656577 dated 11/02/1442 (corresponding to 28/09/2020) with an authorized share capital of SAR 300 Mn divided into 30 million shares of SAR 10 each.

As at 31 December 2020, the Company held 100 percent of the issued shares capital of TASC. The main objective of TASC is to provide financial technology solutions, research and development in the field of engineering and technology, market research and opinion polls.

Significant event

The COVID-19 pandemic continues to disrupt global markets as many geographies are experiencing a "second wave" of infections despite having previously controlled the outbreak through aggressive precautionary measures such as imposing restrictions on travel, lockdowns and strict social distancing rules. The Government of Kingdom of Saudi Arabia ("the Government") however has managed to successfully control the outbreak to date, owing primarily to the unprecedented yet effective measures taken by the Government.

Recently, number of COVID-19 vaccines have been developed and approved for mass distribution by various governments around the world. The Government has also approved vaccines which have begun to roll out and will be available to the masses in general during 2021.

These events have impacted the businesses and economies. The management of the Group is continuously monitoring the situation and its impact on the Group's operation, cash flows and financial position. Management believes, based on their assessment, that the Group has sufficient liquidity available to continue to meet its financial commitments for the foreseeable future as and when they become due.

2.1 Statement of compliance

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ("IFRS") as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are issued by Saudi Organization for Certified Public Accountants ("SOCPA") and in compliance with the provisions of the Regulations for Companies in the Kingdom of Saudi Arabia and the By-laws of the Group.

The new Regulation for Companies issued through Royal Decree M/3 on 11 November 2015 (hereinafter referred as "the Law") came into force on 25/07/1437H (corresponding to 2 May 2016). The Company has amended its By-laws for any changes to align those with provisions of the Law. Consequently, the Company presented its amended By-laws to stockholders in their Extraordinary General Assembly meeting for their ratification on 2 January 2020 and Extraordinary General Assembly approved it.

2.2 Basis of measurement

These consolidated financial statements have been prepared on historical cost basis, except for financial assets measured at fair value through profit and loss and employees' end-of-service benefits which is measured using actuarial techniques, using the accrual basis of accounting and the going concern concept.

2.3 Functional and presentation currency

These consolidated financial statements are presented in Saudi Arabian Riyals ("SAR"), which is the functional and presentational currency of the Group. All amounts have been rounded to the nearest SAR.

2.4 Critical accounting estimates and judgments

The preparation of these consolidated financial statements in conformity with the International Financial Reporting Standards ("IFRS") requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about material assumptions and estimation uncertainties are as follows:

	Note
Useful lives of property and equipment	3.5
Useful lives of intangible assets	3.6
Allowance for credit loss on investments at amortized cost	3.4
Allowance for credit losses on accounts receivables	3.4
Valuation of the employees' end-of-service benefits liability	3.11

The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below:

3.1 New accounting policies adopted during the year Deposits with the Saudi Central Bank ("SAMA")

Cash received from the clearing members to cover initial and variation margins and default fund contributions are deposited with the Saudi Central Bank ("SAMA"). Moreover, the Group has also made an initial deposit as required by the Capital Markey Authority ("CMA").

Margin deposits from clearing members

The Group receives margin deposits from its clearing members as collateral in connection with the outstanding derivative contracts between the Group and its members. The obligation to refund the margin deposits is recognized and presented as margin deposits from clearing participants under current liabilities. Liabilities held in this category are initially recognized at fair value and subsequently re-measured at amortized cost using the effective interest rate method.

Members' contributions to clearing house funds

This represents a prefunded default arrangement that is composed of assets contributed by the Group's participants that may be used by the Group in certain circumstances to cover losses or liquidity pressures resulting from participant defaults. These balances are included under current liabilities. Liabilities held in this category are initially recognized at fair value and subsequently remeasured at amortized cost using the effective interest rate method.

3.2 Changes in accounting policies

The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in the preparation of the annual audited consolidated financial statements for the year ended 31 December 2019. Based on the adoption of these amendments and in consideration of current economic environment, the following accounting policies are applicable effective 1 January 2020 replacing, amending or adding to the corresponding accounting policies set out in 2019 annual audited consolidated financial statements.

Amendments and interpretations adopted in preparation of these consolidated financial statements

Below amendments to accounting standards and interpretations became applicable for annual reporting periods commencing on or after 1 January 2020. The management has assessed that the amendments have no significant impact on the Group's financial statements.

• Amendments to IFRS 3: Definition of a Business;
• Amendments to IAS 1 and IAS 8: Definition of Material;
• Amendments to References to the Conceptual Framework in IFRS Standards; and
• Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform - Phase 1

New standards and amendments issued but not yet effective and not early adopted

The accounting standards, amendments and revisions which have been published and are mandatory for compliance for the Group's accounting year beginning on or after 1 January 2021 are listed below. The Group has opted not to early adopt these pronouncements and do not expect these to have significant impact on the consolidated financial statements.

• COVID-19 - Related Rent Concessions (Amendments to IFRS 16);
• IFRS 17 - Insurance contracts, applicable for the period beginning on or after 1 January 2023;
• Amendments to IAS 1 - Classification of Liabilities as Current or Non-current, applicable for the period beginning on or after 1 January 2022;
• Onerous contracts - Cost of Fulfilling a contract (Amendments to IAS 37);
• Interest Rate Benchmark Reform - Phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16);
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); and
• Reference to Conceptual Framework (Amendments to IFRS 3)

The management of the Group anticipates that the application of these new standards and amendments in the future will not have significant impact on the amounts reported.

3.3 Basis of consolidation

These consolidated financial statements comprise the financial statements of Tadawul and its subsidiaries (collectively referred to as "the Group"). Control is achieved when the Group is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

In assessing control, potential voting rights that presently are excisable are taken into account. The financial statements of subsidiaries are included in the IFRS consolidated financial statements from the date that control commences until the date control ceases.

All transactions and resulting balances between the Company and the subsidiaries are eliminated in preparing these consolidated financial statements. Any unrealized gains and losses arising from intra-group transactions are eliminated on consolidation.

3.4 Financial instruments

i. Classification and measurement of financial assets

The classification and measurement of financial assets is set out below:

Under IFRS 9, upon initial recognition, a financial asset is classified as measured at:

• amortized cost;
• fair value through other comprehensive income (FVOCI) - debt investment;
• FVOCI - equity investment; or
• FVTPL.

The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

Financial assets at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at FVTPL

Financial assets at fair value through profit or loss comprise investments in equity securities that do not qualify for measurement at either amortized cost or at FVOCI.

Financial instruments held at FVTPL are initially recognized at fair value, with transaction cost recognized in the statement of profit or loss as incurred. Subsequently, they are measured at fair value and any gains and losses are recognized in the statement of profit or loss as they arise.

The following accounting policies apply to the subsequent measurement of financial assets:

Financial assets at FVTPL	These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in the consolidated statement of profit or loss.
Financial assets at amortized cost	These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in the consolidated statement of profit or loss.
Debt investments at FVOCI	These assets are subsequently measured at fair value. Interest income is calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI	These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

ii. Classification and measurement of financial liabilities

Financial liabilities are measured at amortized cost, unless they are required to be measured at fair value through profit or loss or the Group has opted to measure a liability at fair value through profit or loss.

iii. Derecognition

Financial assets

A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognized) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognized in OCI is recognized in profit or loss.

Financial liabilities

A financial liability is derecognized when its contractual obligations are discharged or cancelled or expired.

iv. Offsetting

Financial assets and liabilities are offset and reported net in the statement of financial position when there is a currently legally enforceable right to set off the recognized amounts and when the Group intends to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are not being offset in the statement of profit or loss unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Group.

v. Impairment of financial assets

IFRS 9 uses "expected credit loss" (ECL) model to assess the impairment of financial assets. The impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.

Expected credit loss shall be measured and provided either at an amount equal to (a) 12 month expected losses; or (b) lifetime expected losses. If the credit risk of the financial instrument has not increased significantly since inception, then an amount equal to 12 month expected loss is provided. In other cases, lifetime credit losses shall be provided. For trade receivables with a significant financing component a simplified approach is available, whereby an assessment of increase in credit risk need not be performed at each reporting date. Instead, the Group can choose to provide for the expected losses based on lifetime expected losses. The Group has chosen to avail the option of lifetime expected credit losses ("ECL''). For trade receivables with no significant financing component, the Group is required to follow lifetime ECL.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. Impairment losses related to accounts receivables and investments at amortized cost are presented in the consolidated statement of profit or loss.

3.5 Property and equipment

Property and equipment except land are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Land is measured at its cost.

Cost includes expenditure that are directly attributable to the acquisition of the asset including the cost of purchase and any other costs directly attributable to bringing the assets to a working condition for their intended use. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the assets (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of profit or loss in the year the asset is derecognized.

The cost of replacing part of an item of operating fixed assets is recognized in the carrying amount of the item if it is probable the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The cost of the day-to-day servicing of operating fixed assets are recognized in the statement of profit or loss as incurred.

Depreciation

Depreciation is calculated over depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognized in the consolidated statement of profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property and equipment. Depreciation of an asset begins when it is available for use.

The estimated useful lives for current and comparative periods of different items of property and equipment are as follows:

	Estimated useful lives (years)
Building	30
Furniture and fixtures	10
Computers	4
Office equipment	6
Vehicles	4

Depreciation methods, useful lives, impairment indicators and residual values are reviewed at each annual reporting date and adjusted, if appropriate.

3.6 Intangible assets

These represent software held for use in the normal course of the business and are stated at cost less accumulated amortization and accumulated impairment losses, if any. Amortization is charged to the statement of profit or loss over an estimated useful life of the software using the straight-line method. The estimated useful life of software is 6 years.

Work in progress is stated at cost until the development of software are complete and installed. The software are developed by third parties to Group's specification. Upon the completion and installation, the cost together with cost directly attributable to development and installation are transferred to the intangibles. No amortization is charged on work in progress.

3.7 Impairment of non-financial assets

The carrying amounts of the Group's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit", or "CGU"). For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the Group of CGUs that is expected to benefit from the synergies of the combination.

This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes.

The Group's corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the consolidated statement of profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss (except against goodwill) is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

3.8 Investments in investment in equity-accounted investees

An associate is an entity over which the Group has significant influence, but not control or joint control. Significant influence is the power to participate in the financial and operating policy decisions of the investee.

Investments in associates are accounted for using the equity method and are recognized initially at cost. The consolidated financial statements include the Group's share of the income and expenses and equity movements of equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

When the Group's share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has a corresponding obligation.

After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is any objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the loss in the consolidated statement of profit and loss.

3.9 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, cash at banks in current accounts and other short-term liquid investments with original maturities of three months or less, if any, which are available to the Group without any restrictions.

3.10 Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost in the statement of profit or loss.

3.11 Employees' end-of-service benefits liability

Employees' end-of-service benefits are payable to all employees employed under the terms and conditions of the labor laws applicable to the Group.

The Group's net obligation in respect of employees' end-of-service benefits is calculated by estimating the amount of future benefits that employees have earned in the current and prior periods. That benefit is discounted to determine its present value.

Re-measurements, comprising actuarial gains and losses, are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income, in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

The Group recognizes the following changes in the defined benefits obligation under "operating cost" and "general and administrative expenses" in the profit and loss account:

• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and
• Interest expense.

The calculation of defined benefits obligation is performed annually by a qualified actuary using the projected unit credit method.

3.12 Revenue recognition

The Group recognizes revenue under IFRS 15 using the following five steps model:

Step 1: Identify the contract with customer	A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.
Step 2: Identify the performance obligations	A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.
Step 3: Determine the transaction price	The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
Step 4: Allocate the transaction price	For a contract that has more than one performance obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Group expects to be entitled in exchange for satisfying each performance obligation.
Step 5: Recognize revenue	The Group recognizes revenue (or as) it satisfies a performance obligation by transferring a promised good or service to the customer under a contract.

The trading commission revenue is recognized at the trade date to which the transaction pertains when the obligation to provide trade services has been fulfilled. Part of total commissions and services provided by the Group are deducted in favor of CMA.

The Group charges a listing fee service, which represents initial subscription fees of the listed companies in addition to the annual renewal fees.

Listing fee is collected semi-annually and is recorded as unearned revenues (deferred revenue) and is subsequently recognized in the consolidated statement of profit or loss on a straight line basis over the period to which the fee relates, as it reflects the extent of the Group's progress towards completion of the performance obligation under the contract.

Securities depository services includes multiple revenue streams which pertains to Edaa. Most significant component of this revenue stream relates to registry services. Registry fee is collected annually at the start of the year and is recorded as unearned revenue (deferred income) and is subsequently recognized in the consolidated statement of profit or loss on a straight line basis over the period to which the fee relates, as it reflects the extent of the Group's progress towards completion of the performance obligation under the contract.

Dividend income

Dividend income is recognized when the right to receive is established.

Special commission income

Special commission income is recognized in the statement of profit or loss on an effective yield basis.

3.13 Expenses

General and administrative expenses are those arising from the Group's efforts underlying the marketing, consultancy and maintenance functions. Allocations of common expenses between operating costs and general and administrative expenses, when required, are made on a consistent basis.

3.14 Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate ruling at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of FVOCI instruments, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

3.15 Zakat

Based on Royal Decree 35657 issued on 29/6/1442H, the Group is subject to Zakat in accordance with the Zakat regulation issued by the General Authority for Zakat and Tax ("GAZT") in the Kingdom of Saudi Arabia effective 1 January 2020. Zakat is recognized in profit or loss. Zakat is levied at a fixed rate of 2.5% of the zakat base as defined in the Zakat regulations.

Additional zakat calculated by GAZT, if any, related to prior years is recognized in the year in which final declaration is issued.

3.16 Contingent liabilities

All possible obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly with the control of the Group; or all present obligations arising from past events but not recognized because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or (ii) the amount of the obligation cannot be measured with sufficient reliability; all should be assessed at reporting date and disclosed in the Group's consolidated financial statements under contingent liabilities.

3.17 Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The fair value of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

At each reporting date, management of the Group analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group's accounting policies. For this analysis, the management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

3.18 Right-of-Use assets and lease liabilities

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of identified asset for a period of time in exchange for consideration.

As a lessee:

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred at and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.

Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable; - variable lease payments that are based on an index or a rate;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated statement of profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise small items relating to office equipment.

As a lessor:

The Group does not have any contracts in capacity of lessor.

3.19 Current versus non-current classification

The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is classified as current when:

• expected to be realised or intended to sell or consumed in normal operating cycle;
• held primarily for the purpose of trading;
• expected to be realised within twelve months after the reporting period; or
• cash or cash equivalent, unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

• it is expected to be settled in normal operating cycle;
• it is held primarily for the purpose of trading;
• it is due to be settled within twelve months after the reporting period; or
• there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

The Group classifies all other liabilities as non-current.

	Land	Building	Furniture and fixtures	Computers	Office equipment	Vehicles	Total
Cost:
Balance as at 1 January 2019	2,310,985	618,248	20,261,233	104,942,555	17,911,192	1,656,350	147,700,563
Additions	-	-	1,750,929	531,485	870,772	-	3,153,186
Balance as at 31 December 2019	2,310,985	618,248	22,012,162	105,474,040	18,781,964	1,656,350	150,853,749
Balance as at 1 January 2020	2,310,985	618,248	22,012,162	105,474,040	18,781,964	1,656,350	150,853,749
Additions	-	141,755	35,085	12,455,164	325,042	-	12,957,046
Disposals	-	-	-	(153,594)	-	-	(153,594)
Balance as at 31 December 2020	2,310,985	760,003	22,047,247	117,775,610	19,107,006	1,656,350	163,657,201
Accumulated depreciation:
Balance as at 1 January 2019	-	68,694	15,741,114	95,989,261	16,181,183	1,399,246	129,379,498
Charge for the year	-	20,608	668,652	6,246,723	711,364	133,500	7,780,847
Balance as at 31 December 2019	-	89,302	16,409,766	102,235,984	16,892,547	1,532,746	137,160,345
Balance as at 1 January 2020	-	89,302	16,409,766	102,235,984	16,892,547	1,532,746	137,160,345
Charge for the year	-	20,608	610,572	3,958,461	555,493	123,604	5,268,738
Disposals	-	-	-	(153,594)	-	-	(153,594)
Balance as at 31 December 2020	-	109,910	17,020,338	106,040,851	17,448,040	1,656,350	142,275,489
Net book value:
As at 31 December 2020	2,310,985	650,093	5,026,909	11,734,759	1,658,966	-	21,381,712
As at 31 December 2019	2,310,985	528,946	5,602,396	3,238,056	1,889,417	123,604	13,693,404

Property and equipment include work in progress amounting to SAR 2 Mn (2019: SAR 1.6 Mn). Work in progress is not depreciated until the asset is placed in service.

For the year ended 31 December	2020	2019
Cost:
Balance at beginning of the year	396,690,327	305,731,768
Additions	32,719,327	90,958,559
Disposals/write-off	-	-
Balance at end of the year	429,409,654	396,690,327
Accumulated amortization:
Balance at beginning of the year	220,174,152	191,109,604
Charge for the year	29,683,220	29,064,548
Disposals/write-off	-	-
Balance at end of the year	249,857,372	220,174,152
Net book value as at 31 December	179,552,282	176,516,175

Intangible assets include work in progress amounting to SAR 98.7 Mn (2019: SAR 103.7 Mn). Work in progress is not amortized until the asset is placed in service.

This represents the Group's share of investment in Tadawul Real Estate Company ("the Associate"), a company incorporated in the Kingdom of Saudi Arabia, where the Company has significant influence through voting rights. As at 31 December 2020, the Group owns 33.12% (31 December 2019: 20%) share capital of the Associate. The main activity of the Associate is to develop a commercial office tower in King Abdullah Financial District, Riyadh, where the Group expects to be headquartered.

The movement of investment in the Associate is as follows:

For the year ended 31 December	2020	2019
Balance at beginning of the year	40,996,978	42,607,073
Additional investment during the year	340,000,000	-
Share of loss for the year	(2,101,685)	(1,610,095)
Balance at end of the year	378,895,293	40,996,978

The following table summarizes the financial information of the Associate as included in the audited financial statements as of 31 December 2020 and 31 December 2019:

	31 December 2020	31 December 2019
Summarized statement of financial position
Total current assets	298,827,419	230,738,931
Total non-current assets	1,925,466,589	1,258,086,427
Total current liabilities	969,825,327	458,032,604
Total non-current liabilities	47,354,400	674,805,324
Net assets (100%)	1,207,114,281	355,987,430
Summarized statement of comprehensive income
Total comprehensive loss for the year	8,873,149	6,244,803

The Group has recognized its share of loss for the year ended 31 December 2020, based on the 2020 audited financial statements of the Associate. The financial restructuring of the Associate was completed during the year 2020. The restructuring involved conversion of investment of the Group in the Associate in the form of sukuk amounting to SAR 130 Mn (Note 7) to equity investment. Furthermore, the Company made additional equity investment amounting to SAR 210 Mn to the Associate. These transactions were approved by the Group's Board of Directors on 19 April 2020. This restructuring has not resulted to the Group to gain control over the Associate.

Investment securities portfolios are summarized as follows:

	Notes	31 December 2020	31 December 2019
Non-current
Investments at amortized cost	7.1	101,267,886	231,554,876
		101,267,886	231,554,876
Current
Investments at amortized cost	7.3	-	75,000,000
Investments at FVTPL	7.4	3,103,518,964	2,585,288,572
		3,103,518,964	2,660,288,572

 

7.1 Investments at amortized cost - non-current

This represents investment in Sukuk issued by counter parties operating in Kingdom of Saudi Arabia having sound credit ratings. These Sukuks carry an average commission rate of 2.50% per annum during 2020 (2019: 2.7%). The details of these investments are as follow:

Description	Notes	31 December 2020	31 December 2019
General Authority of Civil Aviation		100,000,000	100,000,000
Tadawul Real Estate Company	7.1.1	-	130,000,000
Accrued income		1,311,751	2,674,804
Impairment loss on investments at amortized cost	7.2	(43,865)	(1,119,928)
		101,267,886	231,554,876

 

7.1.1 Tadawul Real Estate Company sukuk which was held by the Group previously was converted to equity investment during the year ended 31 December 2020 (refer to Note 6).

 

7.2 The movement of the expected credit losses on investment held at amortized cost is summarized as follows:

	31 December 2020	31 December 2019
Balance at the beginning of the year	1,119,928	1,462,752
Reversal for the year	(1,076,063)	(342,923)
Balance at the end of the year	43,865	1,119,928

 

7.3 Investments at amortized cost - current

Description	31 December 2020	31 December 2019
Savola Group Company Sukuk	-	75,000,000
Total	-	75,000,000

 

7.4 Investments at fair value through profit or loss ("FVTPL")

This represents investment in units of mutual funds, which are governed by the regulation issued by CMA. The cost and fair value of investments held at FVTPL are as follows:

	31 December 2020		31 December 2019
	Cost	Fair value	Cost	Fair value
Money market funds	3,017,198,517	3,074,346,514	2,458,092,921	2,548,344,972
Real estate funds	40,000,000	29,172,450	40,000,000	36,943,600
Total	3,057,198,517	3,103,518,964	2,498,092,921	2,585,288,572

	31 December 2020	31 December 2019
Balance at beginning of the year	11,271,347	25,698,494
Additions	21,846,997	-
Depreciation charge for the year	(13,261,618)	(14,427,147)
Balance at end of the year	19,856,726	11,271,347

	Notes	31 December 2020	31 December 2019
Account receivables:
- Related parties	28.1	7,217,825	10,136,265
- Others		76,760,587	37,921,349
Less: Allowance for credit losses	9.1	(26,613,594)	(6,877,735)
		57,364,818	41,179,879

 

9.1 The movement in the allowance for credit losses is summarized as follows:

For the year ended 31 December	2020	2019
Balance at the beginning of the year	6,877,735	6,729,241
Charge for the year	19,735,859	148,494
Balance at the end of the year	26,613,594	6,877,735

	Notes	31 December 2020	31 December 2019
Advance against purchase of property	10.1	77,500,000	77,500,000
Prepaid insurance expenses		7,770,332	7,767,406
Accrued operational revenue		10,108,448	5,551,232
Advance to employees		2,875,632	6,232,881
Prepaid maintenance expenses		1,418,613	1,328,331
Value-added tax (VAT) receivable, net		-	745,507
Other receivables		2,598,810	3,715,643
		102,271,835	102,841,000

 

10.1 This represents advance paid to purchase a property for establishing the data center in King Abdullah Financial District.

This represents cash collateral received from clearing participants in the form of initial margin, variation margin and default fund. It also includes SAR 10 Mn deposited by the Group as per CMA guidelines. Commission is earned on such deposits, part of the commission is booked by the Group and the clearing members' share of the commission is added to their collateral accounts.

	Note	31 December 2020	31 December 2019
Cash at banks - current accounts		96,798,376	142,140,619
Short-term Murabaha placement	12.1	-	126,347,248
		96,798,376	268,487,867

 

12.1 Short-term Murabaha placement was with a counter party having sound credit rating. This placement had an original maturity period of less than three months and carried an average special commission rate of 2.45% per annum. This Murabaha matured in the month of January 2020 and was not renewed.

In accordance with the Company's By-laws and the Saudi Arabian Regulations for Companies effective 25 Rajab 1437H (corresponding to 2 May 2016), the Company is required to set aside 10% of its net income each year as statutory reserve until such reserve reaches 30% of the share capital. The Company transfers the required net income to the statutory reserve at year-end. This reserve is currently not available for distribution to the shareholders of the Group.

In accordance with the approval of the Chairman of CMA vide letter number 524/2007 dated 31 February 2007, a balance of the retained earnings was transferred to a contractual reserve for the purpose of financing the construction of Tadawul's headquarter in King Abdullah Financial District and any other future purposes to be decided by the Company's Board of Directors. During the year 2008, the Board of Directors of the Company had resolved, according to a decision number 6/8/2008, to transfer such balance of the contractual reserve to a general reserve.

The movement in employees' end-of-service benefits is as follows:

For the year ended 31 December	2020	2019
Balance at beginning of the year	77,294,401	72,059,827
Current service cost	9,028,207	7,941,617
Interest cost	2,272,055	3,024,828
Amount recognized in profit or loss	11,300,262	10,966,445
Re-measurement loss recognized in other comprehensive income	5,301,735	8,547,741
Benefits paid during the year	(2,872,352)	(14,279,612)
Balance at the end of the year	91,024,046	77,294,401

 

15.1 Net end-of-service benefit liability is as follows:

	31 December 2020	31 December 2019
Present value of benefit liability	91,024,046	77,294,401
Fair value of plan assets	-	-
Net defined benefit liability	91,024,046	77,294,401

 

15.2 Remeasurement loss recognized in other comprehensive income for the year is as follows:

For the year ended 31 December	2020	2019
Effect of changes in financial assumptions	5,930,906	6,881,144
Effect of changes in demographic assumptions	-	-
Effect of experience adjustments	(629,171)	1,666,597
Remeasurement loss recognized in other comprehensive income	5,301,735	8,547,741

 

15.3 Principal actuarial assumptions

	31 December 2020	31 December 2019
Key actuarial assumptions
Discount rate used (%)	1.85	2.85
Future growth in salary (%)	5.00	5.00
Turnover	Heavy	Heavy
Demographic assumptions
Retirement age (years)	64	64

 

Discount rate used

This rate is used to obtain the actuarial present value of the projected benefits. As per IAS 19 Employee Benefits, the rate to be used to discount post-employment benefit obligations (both funded and un-funded) shall be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. In countries where there is no deep market in such bonds, the market yields (at the end of reporting period) on government bonds shall be used. The currency and term of the corporate bonds or government bonds shall be consistent with the currency and expected term of the post-employment benefit obligation. Since there is no deep market for high quality corporate bonds in the Kingdom of Saudi Arabia, therefore, the market yield of government bond is considered.

Salary increases

With regards to the past trend, it is assumed that the salaries would increase at a rate of 5.00% per annum compound in the long range. The valuation is sensitive to the gap between the interest and salary increase assumptions. The situation will be kept under review. Salary increments each year are assumed to be given on 1 February.

15.4 Maturity profile of the defined benefit liability

	2020	2019
Weighted average duration (years)	7.82	7.48
Distribution of timing of benefit payments:
Years	Amount	Amount
1	10,186,507	6,031,485
2	12,717,122	8,573,188
3	8,549,431	7,722,731
4	8,229,939	5,562,937
5	8,793,346	5,380,932
6-10	51,312,962	33,863,686

 

15.5 Sensitivity analysis

Reasonably possible changes as to one of the relevant actuarial assumptions, holding other assumptions constant, the amount of defined benefit obligations would have been:

	31 December 2020		31 December 2019
	Increase	Decrease	Increase	Decrease
Discount rate (0.5% movement)	90,624,158	98,126,361	76,620,657	82,666,148
Future salary growth (0.5% movement)	96,337,369	92,251,617	81,214,900	77,945,735

 

15.6 Risks associated with defined benefit plans

Longevity risks:

The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entire retiree population.

Salary increase risk:

The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actual salary increases are higher than expectation and impacts the liability accordingly.

This represents amount of lease liability as per IFRS 16 for the rented offices of the Company.

Following are the classification and maturity analysis of lease liabilities into current and non-current:

	Future minimum lease payments	Interest	Present value of minimum lease payments
Current	9,381,700	253,057	9,128,643
Non-current	5,037,933	379,585	4,658,348

 

	Notes	31 December 2020	31 December 2019
Clearing members house collateral	17.1	1,001,361	-
Clearing members client collateral	17.2	16,539,779	-
Clearing members initial margin	17.3	1,489,200	-
		19,030,340	-

 

17.1 This represents cash collateral received from clearing members on their own account.

 

17.2 This represents cash collateral received from clearing members on account of their customers.

 

17.3 This represents cash collateral from clearing members highlighting values with position.

 

This represents prefunded default arrangement that is composed of assets contributed by clearing member that may be used by the Group in certain circumstances to cover the losses or liquidity pressure resulting from participant defaults.

	Note	31 December 2020	31 December 2019
Trade payables
Others		81,667,208	96,877,390
Related parties	28.3	13,647,463	8,506,476
		95,314,671	105,383,866

 

	31 December 2020	31 December 2019
Accrued employees expenses	94,647,318	67,464,699
Accrued social insurance - General Organization for Social Insurance	2,108,213	2,007,831
Value added tax (VAT), net	10,195,945	-
BOD payable	5,470,358	-
Others	4,194,449	5,545,802
	116,616,283	75,018,332

 

Effective 1 January 2020, the Group is subject to Zakat in accordance with the Zakat regulation issued by GAZT based on Royal Decree 35657 issued on 29/6/1442H. The Group is yet to file its consolidated Zakat return for the Company and its wholly-owned subsidiaries with GAZT. Zakat charge for the year amounted to be SAR 92.34 Mn.

	31 December 2020
Share capital	1,200,000,000
Statutory reserve	326,911,746
General reserve	1,114,180,214
Retained earnings	618,313,284
Liabilities and provisions	98,310,239
Non-current assets	(721,787,698)
Zakat base	2,635,927,785
Zakat %	2.5847
	68,130,825
Adjusted profit	617,217,951
Zakat %	2.5
	15,430,449
Zakat charge for the year	83,561,274

Movement of zakat is as follows:

	31 December 2020
Balance at the beginning of the year	-
Charge for the year	83,561,274
Balance at the end of the year	83,561,274

 

For the year ended 31 December	Notes	2020	2019
Trading commission	22.1	767,002,623	317,830,780
Securities depository services		132,255,954	123,287,116
Market information services		112,495,753	61,345,104
Listing fee		65,340,676	60,615,484
Clearing fees	22.2	943,253	-
Membership		416,967	-
Other		1,179,864	1,669,415
		1,079,635,090	564,747,899

 

22.1 In accordance with the Council of CMA resolution no. (17/270/6) dated 18 January 2017, operating revenues arrangement between the Group and CMA with effect from 1 January 2017 is as follows:

• CMA is entitled to receive a financial return equal to 64% of total trading commission. The Group shall collect this return on behalf of CMA and deposit into CMA's account based on its instructions; and
• The Group is entitled to keep 100% of operating revenue (except trading commission, which is subject to the above-mentioned financial return sharing arrangement).

22.2 This represents income from activities in derivative market.

 

Operating costs include direct expenses incurred by the Group to provide services to its customers and the Saudi financial market.
A breakdown of operating costs is as follows:

For the year ended 31 December	Notes	2020	2019
CMA fees	23.1	91,000,000	79,000,000
Salaries and related benefits		134,131,451	119,098,176
Consultancy		3,469,564	7,206,119
Maintenance		54,307,911	41,060,572
Depreciation and amortization		31,808,960	29,315,749
Data network lines		11,515,517	26,094,087
Utilities		974,729	1,230,843
Security expense		2,071,007	1,998,109
Hospitality and cleaning		1,740,702	1,992,157
Credit loss on accounts receivable	9.1	19,735,859	148,493
SAREE system usage fees		1,099,000	1,016,000
Communication		447,258	366,658
Business trip		68,192	351,677
Marketing and sponsorship		459,632	10,205,894
License fees		910,744	654,431
Training		(71,721)	3,911,452
Others		2,815,688	2,477,699
		356,484,493	326,128,116

 

23.1 This represents fee payable to CMA in relation to services provided by the Group in accordance with the Council of CMA resolution No. (17/268/6) dated 18 January 2017 and CMA Board decision No. (3-2-2019) dated 7 January 2019.

 

For the year ended 31 December	2020	2019
Salaries and related benefits	126,096,173	123,513,152
Consultancy	11,073,105	17,097,581
Maintenance	3,958,241	3,792,500
Depreciation and amortization	16,404,616	22,497,007
Board of Directors' remuneration	6,254,359	5,437,049
Security expense	1,863,725	1,791,059
Utilities	870,601	1,073,158
Hospitality and cleaning	1,861,712	1,792,885
Communications	324,716	947,702
Business trip	283,371	437,812
Trading activities insurance contracts	1,036,418	657,207
Training	2,562,074	5,356,816
Stationery and office supplies	281,323	378,457
Marketing and sponsorship	2,087,106	3,257,249
License fees	2,166,835	1,800,433
Data network lines	24,173	11,664
Others	3,096,312	7,118,878
	180,244,860	196,960,609

Salaries, consultancy and maintenance expenses pertaining to 2019 amounting to SAR 10.9 Mn, SAR 4.2 Mn and SAR 8.7 Mn, respectively, were reclassified from General and administrative expenses to Operating costs in the comparative period. This reclassification is to conform with the current year presentation as a result of a more rigorous assessment made during 2020.

For the year ended 31 December	2020	2019
Special commission income	2,856,686	25,901,398
Dividend income	11,367,239	12,782,200
Realized gain on investments, net	15,751,508	5,425,998
Unrealized gain on investments, net	8,817,609	50,234,343
Commission from SAMA deposits	4,103	-
	38,797,145	94,343,939

 

Basic and diluted earnings per share is computed by dividing income attributable to the ordinary shareholders of the Company by the weighted average outstanding number of shares for the year ended 31 December 2020, totaling 120 million shares (31 December 2019: 120 million shares).

Commitments represent the value of the part not yet executed from supply contracts of assets and services to the Group as follows:

	31 December 2020	31 December 2019
Purchase of assets	21,651,765	13,593,996
Committed expenditure	24,838,057	9,839,370
Letter of guarantee	11,300,000	11,300,000
	57,789,822	34,733,366

 

In the ordinary course of its activities, the Group transacts business with its related parties. Related parties include PIF ("the shareholder"), Tadawul Real Estate Company ("the Associate"), the Group's Board of Directors, and key executives, and other entities, which are under common ownership through PIF ("Affiliates") or have common directors on their Board ("Board of Directors"). Transactions are carried out on mutually agreed terms approved by the management of the Group.

28.1 The significant transactions with related parties during 2020 in relation to the Group's core activities are as follows:

		Nature of transactions
Nature of relationship	Sales and marketing	Securities depository services	Securities clearing services	Year ended 31 December 2020
Affiliates	75,733,048	23,163,779	190,111	99,086,938
Board of Directors	3,356,070	-	-	3,356,070
Board of Directors/Affiliates	561,295,279	-	-	561,295,279
Total	640,384,397	23,163,779	190,111	663,738,287

The receivables balances arising from the above transactions are as follows:

	For the year ended 31 December 2020
Nature of relationship	Opening balance	Invoiced	Collections	Ending balance
Affiliates	6,286,548	99,086,938	(102,549,637)	2,823,849
Board of Directors	1,185,250	3,356,070	(4,541,320)	-
Board of Directors/Affiliates	2,559,467	561,295,279	(559,460,770)	4,393,976
The Associate	105,000	-	(105,000)	-
Total	10,136,265	663,738,287	(666,656,727)	7,217,825

 

	Nature of transactions
Nature of relationship	Sales and marketing	Securities depository services	31 December 2019
Affiliates	150,409,830	20,733,676	171,143,506
Board of Directors	62,608,472	-	62,608,472
Board of Directors/Affiliates	107,950,564	-	107,950,564
The Associate	-	105,000	105,000
Total	320,968,866	20,838,676	341,807,542

 

	For the year ended 31 December 2019
Nature of relationship	Opening balance	Invoiced	Collections	Ending balance
Affiliates	3,134,914	171,143,505	(167,991,871)	6,286,548
Board of Directors	2,486,452	62,608,472	(63,909,674)	1,185,250
Board of Directors/Affiliates	6,955,800	107,950,564	(112,346,897)	2,559,467
The Associate	105,000	105,000	(105,000)	105,000
Total	12,682,166	341,807,541	(344,353,443)	10,136,265

 

28.2 Other balances with related parties included in investments at "FVTPL" are as follows:

	For the year ended 31 December 2020
Nature of relationship	Opening balance	Purchases/(Disposals)	Unrealized gain	Ending balance
Board of Directors	1,395,019,617	(269,427,458)	17,241,287	1,142,833,446

 

	For the year ended 31 December 2019
Nature of relationship	Opening balance	Purchases/(Disposals)	Unrealized gain	Ending balance
Board of Directors	140,588,370	277,698,457	7,118,039	425,404,866

 

28.3 Other balances with related parties included within accounts payables are as follows:

	For the year ended 31 December 2020
Nature of relationship	Opening balance	Services received	Payments made	Ending balance
Affiliates	7,462,036	10,581,360	(10,293,450)	7,749,946
Board of Directors	1,044,440	6,769,077	(1,909,826)	5,903,691
Total	8,506,476	17,350,437	(12,203,276)	13,653,637

 

	For the year ended 31 December 2019
Nature of relationship	Opening balance	Services received	Payments made	Ending balance
Affiliates	5,511,881	12,528,050	(10,577,894)	7,462,037
Board of Directors	1,442,000	5,577,471	(5,975,032)	1,044,439
Total	6,953,881	18,105,521	(16,552,925)	8,506,476

 

	For the year ended 31 December 2019
Nature of relationship	Opening balance	Special commission earned	Collections	Ending balance
The Associate	130,000,000	-	-	130,000,000

The above balance has been converted and transferred from investment (sukuk) to equity-accounted investee during the year ended 31 December 2020 (refer to Note 6).

The Group operates solely in the Kingdom of Saudi Arabia. For Management purposes, the Group is organized into business units based on services provided. The reportable segments of the Group are as under:

Markets

This business unit's main objective is to grow business by improving products/services, attracting domestic listings, (in the longer term) foreign listings, and developing new asset classes. The responsibilities include maintaining the integrity, stability, and fairness of stock market operations. Its objective is to achieve outstanding results through operational excellence, collaboration with CMA, cost effectiveness, total customer experience management, and developing a capable work force.

Edaa

The activities of Edaa include registration of investment portfolios in the filing and settlement system, register and file its ownership, transfer, settlement and clearing its ownership, registering any restriction of ownership on the file securities, and associate with members of the market and settlement agents to filing and settlement system. Further, Edaa links and manages records of securities issuers, organizes general assemblies for issuers including remote voting service for such assemblies, provide reports, notifications and information in addition to providing any other service relating to its activities according to financial market regulations.

Market information

The activities of this segment is to grow business of market information which includes offer high-quality real-time trading data, reference data, market indices and financial information to the financial community.

Corporate

Corporate manages future corporate development and controls all treasury related functions. All investments are incubated within this business segment, which also comprise managing strategy for business development, legal, finance, operations, human resources and customers' relation Management.

2020	Markets	Edaa	Muqassa	Derivatives	Market information	Corporate	Total
Operating revenues	454,435,197	511,328,368	441,819	933,953	112,495,753	-	1,079,635,090
Net income/(loss)	308,924,148	279,659,576	(70,909,803)	(22,828,877)	85,901,318	3,333,782	584,080,144
Total assets	-	777,018,280	228,684,367	-	-	3,087,382,803	4,093,085,450
Total liabilities	-	70,026,151	44,959,059	-	-	259,916,587	374,901,797

 

2019	Markets	Edaa	Muqassa	Derivatives	Market information	Corporate	Total
Operating revenues	221,906,317	281,496,478	-	-	61,345,104	-	564,747,899
Operations income/(loss)	86,520,412	91,711,848	(42,935,462)	(25,582,746)	34,043,912	9,535,822	153,293,786
Total assets	-	548,679,850	130,041,282	-	-	2,868,108,966	3,546,830,098
Total liabilities	-	39,457,182	25,130,752	-	-	222,836,920	287,424,854

 

The Group has exposure to the following risks from its use of financial instruments:

• Market risk;
• Credit risk;
• Operational risk; and
• Liquidity risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing these risks. Further quantitative disclosures are included throughout these consolidated financial statements.

Risk management framework

The Board of Directors has an overall responsibility for the establishment and oversight of the Group's risk management framework. The Board is responsible for developing and monitoring the Group's risk management policies. Furthermore, the Board reviews reports from relevant committees in relation to the above on a regular basis.

The Group's risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

Risk management structure

A cohesive organisational structure is established within the Group in order to identify, assess, monitor and control risks.

Board of Directors

The apex of risk governance is the centralised oversight of the Board of Directors providing direction and the necessary approvals of strategies and policies in order to achieve defined corporate goals.

Senior Management

Senior management is responsible for the day to day operations towards achieving the strategic goals within the Group's
pre-defined risk appetite.

The risks faced by the Group and the way these risks are mitigated by Management are summarised below:

30.1 Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate, because of changes in market prices whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Group limits market risk by maintaining a diversified portfolio and by monitoring the developments in financial markets. Market risk reflects price risk, currency risk and special commission rate risk.

Price risk

Price risk is the risk that the value of financial instruments will fluctuate due to changes in market prices. The Group's price risk exposure relates to its quoted investments in mutual funds whose values will fluctuate as a result of changes in market prices.

A 1% change in the redemption prices and quoted prices of the investments, with all other variables held constant, would impact the statement of profit or loss as set out below:

For the year ended 31 December	2020	2019
Effect on profit for the period	31,035,190	25,852,885

The sensitivity analysis prepared is not necessarily indicative of the effects on profit and loss and assets of the Group.

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Group is subject to fluctuations in foreign exchange rates in the normal course of its business. The Group did not undertake significant transactions in currencies other than Saudi Arabian Riyals.

Commission rate risk

Commission risk is represented by the exposure to multiple risks related to the impact of changes in commission rates in the market on the Group's financial position and cash flows. The Group monitors the fluctuations in commission rates and believes that the impact of commission rates risk is not significant as financial instruments held by the Group are not exposed to variable commission rate risk.

30.2 Credit risk

Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers and investment in debt securities.

The below schedule shows the maximum limit for exposure to credit risk of the consolidated statement of financial position elements:

	31 December 2020	31 December 2019
Cash and cash equivalents	96,798,376	268,487,867
Investments at amortized cost	101,311,751	308,794,732
Deposits with SAMA	32,177,558	-
Accounts receivable	83,978,412	48,057,614
Accrued operational revenue	10,108,448	5,551,232
Advance to employees	2,875,632	6,232,881
Other receivables	2,598,810	3,715,643
	329,848,987	640,839,969

 

Cash and cash equivalents

The Group kept its surplus funds with banks having sound credit ratings. Currently the surplus funds are kept with banks having rating as follows:

Fitch		Moody's
Long term	Short term	Long term	Short term
BBB+	F2	A1	P-1

 

Account receivables

Account receivables are shown net of allowance for credit losses. The Group applies IFRS 9 simplified approach in measuring expected credit losses which uses a lifetime expected loss allowance. To measure the expected credit losses, account receivables have been grouped based on the days past due. The historical loss rates adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

Accrued operational revenue

Accrued operating revenue represents earned revenue which is yet to be billed to the customers. These are short-term in nature and from low credit risk counterparties.

Other receivables

Other receivables represent receivables from low credit risk counterparties and is short-term in nature.

Investments at amortized cost

Investments at amortized cost represents sukuk with General Authority of Civil Aviation (GACA). Such sukuk is backed by the Saudi government therefore credit risk is assessed as low.

30.3 Concentration of credit risk

The following table provides information about the exposure to credit risk and expected credit losses for receivables as at 31 December 2020.

	Weighted averag loss rate (%)	Gross carrying amount	Loss allowance	Credi impaired
0-30 days (not past due)	27.03	72,286,524	19,539,792	No
30-60 days	1.34	519,181	6,963	No
61-90 days	2.88	159,588	4,602	No
91-120 days	4.44	74,013	3,283	No
121-180 days	18.05	308,439	55,679	Yes
181-360 days	45.13	2,012,859	908,403	Yes
More than 360 days past due	70.72	8,616,658	6,094,872	Yes
		83,978,412	26,613,594

The following table provides information about the exposure to credit risk and expected credit losses for receivables as at 31 December 2019.

	Weighted average loss rate (%)	Gross carrying amount	Loss allowance	Credit impaired
0-30 days (not past due)	0.31	33,543,951	103,190	No
30-60 days	2.00	1,261,061	25,233	No
61-90 days	2.99	2,392,842	71,536	No
91-120 days	4.51	435,539	19,647	No
121-180 days	18.17	2,571,107	467,183	Yes
181-360 days	45.43	2,077,669	943,808	Yes
More than 360 days past due	90.85	5,775,445	5,247,138	Yes
		48,057,614	6,877,735

 

30.4 Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

Compliance with the Group's standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the Management of the business unit to which they relate, with summaries submitted to the Audit Committee and Senior Management of the Group.

30.5 Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The below schedule shows an analysis of financial assets and liabilities based on the expected date of collection or settlement:

	31 December 2020			31 December 2019
	Less than 12 months	More than 12 months	Total	Less than 12 months	More than 12 months	Total
Cash and cash equivalents	96,798,376	-	96,798,376	268,487,867	-	268,487,867
Deposits with SAMA	32,177,558	-	32,177,558	-	-	-
Investments	3,104,830,715	100,000,000	3,204,830,715	2,662,963,376	230,000,000	2,892,963,376
Account receivables	57,364,818	-	57,364,818	41,179,879	-	41,179,879
Accrued operational revenue	10,108,448	-	10,108,448	5,551,232	-	5,551,232
Advance to employees	2,875,632	-	2,875,632	6,232,881	-	6,232,881
Other receivables	2,598,810	-	2,598,810	3,715,643	-	3,715,643
Total financial assets	3,306,754,357	100,000,000	3,406,754,357	2,988,130,878	230,000,000	3,218,130,878
Margin deposits from clearing participants	19,030,340	-	19,030,340	-	-	-
Members' contribution to clearing house funds	3,147,217	-	3,147,217	-	-	-
Lease liability	9,128,643	4,658,348	13,786,991	4,263,087	-	4,263,087
Accounts payable	95,314,671	-	95,314,671	105,383,866	-	105,383,866
Balance due to CMA	32,758,785	-	32,758,785	22,330,201	-	22,330,201
Accrued expenses and other current liabilities	104,312,125	-	104,312,125	73,010,501	-	73,010,501
Employees' end-of-service benefits liability	-	91,024,046	91,024,046	-	77,294,401	77,294,401
Total financial liabilities	263,691,781	95,682,394	359,374,175	204,987,655	77,294,401	282,282,056
Net financial assets	3,043,062,576	4,317,606	3,047,380,182	2,783,143,223	152,705,599	2,935,848,822

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Underlying the definition of fair value is the presumption that the Group is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis.

When measuring the fair value, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value as the carrying amount of the remaining financial assets and financial liabilities is a reasonable approximation of fair value.

		31 December 2020
	Carrying value	Fair value			Total fair value
		Level 1	Level 2	Level 3
Investments
FVTPL	3,103,518,964	-	3,103,518,964	-	3,103,518,964

 

		31 December 2019
	Carrying value	Fair value			Total fair value
		Level 1	Level 2	Level 3
Investments
FVTPL	2,585,288,572	-	2,585,288,572	-	2,585,288,572

There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements as of 31 December 2020 (31 December 2019: Nil).

Subsequent to the year-end as discussed in Note 3.14, Royal Decree 35657 was issued on 29/6/1442 H whereby the Group was subjected to Zakat effective 1 January 2020. Based on management assessment, this event was accounted as an adjusting event for the year ended 31 December 2020.

Apart from the above, there is no event subsequent to the year-end which requires adjustment to or disclosure in these consolidated financial statements.

The ordinary assembly meeting held on 09 Dhul-Qadah 1441 H (corresponding to 30 June 2020) approved the payment of dividends to shareholders for the year ended 31 December 2019 amounting to SAR 120,000,000 (31 December 2019: SAR 120,000,000).

The consolidated financial statements have been approved by the Board of Directors on 15 Shaban 1442 H corresponding to 28 March 2021.