Main details of market-making procedures

Tadawul trading screen

The Capital Market Authority (CMA) approved today, Dec. 4, the Market-Making Regulations and Procedures proposed by the Saudi Tadawul, which come to regulate market-making activities for listed securities and the resulting effects of accepting the registration application for market-making.

The framework also seeks to set a description of the mechanism for practicing market-making activities on securities.

Market-making activities mean providing continuous buy/sell orders for listed securities during the open market session. This is for the purpose of providing liquidity for the relevant listed security, in accordance with the market-making procedures and provisions of the Market-Making Agreement.

The market maker’s clients may exercise market-making activities by entering orders directly into the market system to manage the former’s orders. The market maker will be responsible for all actions taken by its clients when carrying out market-making activities through it.

As per the market-making procedures, the market maker shall conduct its activities by entering buy and sell orders of similar volume, at competitive prices, on the related listed security, through the trading system, during the second market-open session only.

The entered orders will be executable, fulfilling the conditions of the minimum orders volume, the maximum price difference and the minimum order keeping, as determined by the Market-Making Agreement.

This also includes updating buy and sell orders continuously to ensure they meet the duration of the orders when executing any buy/sell orders, or when the order is canceled or its validity period expires.

In addition, market makers are responsible for maintaining buy and sell orders in an equal proportion of volume throughout the second market-open session during which they entered.

Procedures stipulate that the market may grant the market maker incentives based on the performance criteria as specified in the Market-Making Agreement. This is provided that the performance of the market maker is evaluated based on a particular criterion, where applicable.

Under this criterion, the maximum price difference, the minimum volume of orders and the minimum volume of orders are calculated in the money market based on the following equation:

Minimum order volume (in quantity) = Minimum order volume (in value) ÷ Average price. So that:

- Minimum order volume (in quantity) = the volume of buy and sell orders for shares entered by the market maker.

- Minimum order size (in value) = the value of the buy and sell orders as published on the market website.

Average Price:

Listed Securities: The average price of the security during the preceding six months as a maximum from the date of signing the Market-Making Agreement.

Newly-Listed Securities: The listing price of the security until the completion of six months from its listing date.