Saudi Arabia CMA Greenlights Regulations for Market Making

Saudi Arabia is betting on the continued development of its capital market.

The local stock exchange is 11th in the world in terms of capitalization.

On Monday, the Saudi Arabia Capital Market Authority (CMA) announced it approved new regulations and procedures regarding market making, proposed by the local Saudi Stock Exchange.

The new regulatory framework, Regulations of Market Making and Market Making Procedures, focuses on regulating securities market makers (MMs). The law covers activities related to the placement of buy or sell orders at market openings to guarantee liquidity for relevant stock market instruments.

The CMA requires a market maker to be a cash or derivatives market member and spell out procedures and rules to separate market-making activities from other market actions that the regulated entity performs.

Additionally, MMs must meet several new requirements of the CMA. These include establishing an account with the Securities Depository Center and Securities Clearing Center Company. All of the market maker's activities must remain in compliance with the local law on capital markets.

Monday's approval of market-making rules is another step by the Saudi regulator to fully exploit the potential of the investment industry in the country by increasing its liquidity and volume.

"The Market Maker must assign a Depository Centre Account (where applicable) and a CCP account limited to conducting Market Making activities on a specific security or specific securities in accordance with a Market Making agreement," the new Market Making Regulations stated.

Dynamic Growth of Tadawul

Saudi Stock Exchange, or Tadawul, was founded in 2007 as a joint stock company, but informal stock trading began in 1954. Currently, it is one of the biggest exchanges in the world, placing it in the eleventh spot between the London Stock Exchange (LSE) and the Toronto Stock Exchange (TSE) in terms of overall market capitalization ($3.05 trillion).

However, local investors are not only interested in the traditional market but also in financial technology (fintech). According to a report published last year, the regional fintech sector attracted nearly $350 million in capital over the course of twelve months.

Meanwhile, a survey from July of this year showed high levels of cryptocurrency adoption among Saudi Arabia's residents: three million residents own cryptocurrencies or have been transacting them in 2022, representing $14% of the country's adult population.