Authority Releases Long-Awaited Market Making Regulations to Allow Market Makers to Enter the Saudi Exchange

Capital Markets / Saudi Arabia

CMA Releases Long-Awaited Market Making Regulations to Allow Market Makers to Enter the Saudi Exchange

Christopher Webb
Partner,
Corporate Commercial

Somaia Bugis
Associate,
Corporate Commercial

Hanna AlAlmai
Trainee Lawyer,
Corporate Structuring

The Capital Markets Authority (“CMA”) of the Kingdom of Saudi Arabia (“KSA”) has finally released the long-awaited regulations allowing Market Makers to enter the Saudi Exchange, called Tadawul (the “Exchange”) by way of Market Making Procedures Approved by the Board of the CMA Pursuant to its Resolution Number (1-98-2022) dated 18/02/1444H corresponding to 14/09/2022G and accompanying Market Making Regulations Approved by the Board of the CMA Pursuant to its Resolution Number (1-98-2022) dated 18/02/1444H corresponding to 14/09/2022G.This development comes as a part of the KSA’s Vision 2030, a strategic framework by the KSA to diversify its economy and transform the public sector. Many emerging developments in the Capital Markets sector rely heavily on the concurrent rapidly developing data sector, as the Market Making mechanism will utilise fully automated, high-frequency trading by data centres co-located to servers in KSA.Introducing Market Makers is intended to increase market transparency and liquidity, thus stimulating the private sector. The laws seek to clarify the application and qualifications for Market Makers, the mechanism for conducting Market Making activities and the Market Making incentives granted by the CMA.Key ProvisionsUnless defined in this article, the capitalised terms below have the meanings given to them under the Capital Markets Law and Implementing Regulations.The following summarises the key provisions of the Market Making Procedures and accompanying Market Making Regulations:Market Making Overview: The Regulations define Market Making activities as “providing continuous buy and sell orders for a listed security during the market open session for the purpose of providing liquidity for the relevant listed security”. Market Makers may act as principals acting on their own account or as agents acting on behalf of client(s).Becoming a Market Maker: Only those who have opened a Centre Account at the Exchange (i.e., “Exchange Members”) and a Central Counterparty Clearing House (“CCP”) account to perform Market Making activities will be permitted to conduct Market Making activities as per the Market Making agreement that will be signed between the Exchange and the Exchange Member. Market Making Mechanism: Market Making shall submit buy and sell orders, of comparable size and competitive prices for the specified listed security via the Exchange’s trading system during the market’s open session. These buy and sell orders must be continuously updated to ensure continued compliance with the prescribed mechanism for conducting Market Making activities as well as meet the requirements of Minimum Orders Size¹, Maximum Spread², Minimum Existence of Orders³and Minimum Value Traded⁴, as specified in the Market Making Agreement between the Market Maker and the Exchange.Incentives: The Exchange may also grant incentives to the best performer on a listed security, according to the performance parameters of Minimum Orders Size, Maximum Spread, Minimum Existence of Orders, Minimum Value Traded. These incentives will be further clarified by the CMA.Debt Market Makers remain subject to regulations imposed by the National Debt Management Center (NDMC). How can we help?Our team at Al Tamimi & Company can assist all prospective Market Makers by:

Advising on the qualifying requirements under the Procedures and Regulations;

Assisting with the application process and providing support in the preparation of appropriate documentation, including the translation and notarisation thereof; and

Advising on compliance concerns at all steps of Market Making activities.

¹the minimum price of buy and sell orders submitted by the Market Maker²the maximum difference between the buy and sell price set by the Market Maker³the minimum time existence of sell and buy orders submitted by the Market Maker during the second session⁴ the minimum value traded executed by the Market Maker in relation to the percentage of the total value traded on the relevant security.

For further questions, please contact Christopher Webb, Somaia Bugis or Hanna AlAlmai.

^{Published in May 2023}