Saudi Exchange makes push into algo and high frequency trading

The move comes as the Saudi Exchange expands its equities and derivatives remit, adding two new market makers this month.

Since the beginning of the year, the Saudi Exchange has gone live with a range of developments for its high frequency trading (HFT) and algo trading clients, claiming to have seen notable growth in its order flow following the push.

Order flow originated from the exchange’s algo and HFT clients has grown from around 20% last year to near 30% as of this week, following the implementation of services including co-location facilities, drop copy and cancel-on-disconnect services, The TRADE understands.

Co-location facility for traders is provided through the exchange’s sister company, Wamid – the innovation arm of the Saudi Tadawul Group.

Market making developments have been established in tandem, which is “slowly starting to translate into order flow,” Noelle Al Jaweini, chief of cash markets told The TRADE.

The first banks to become market makers for main market stocks were announced earlier this month in quick succession. The moves follow the exchange’s launch of a new market-making framework in December last year, aimed at boosting market liquidity, providing depth for order books, and enhancing price efficiency and price formation.

Al Rajhi Capital was announced as the first equities market maker on the exchange, beginning activities on 5 July, whilst SNB Capital is the first derivates market maker for MT30 Index Futures.

Additionally, leading Saudi investment company, Riyadh Capital, was last week approved as a market maker on the Saudi Exchange for two companies, Al Rajhi Bank and Americana.

Al Jaweini told The TRADE that since onboarding, both of the cash market makers are now contributing on average around 30% of the securities liquidity between them.

Speaking to the future outlook as the exchange looks to open the gateway for more new types of investors, Al Jaweini confirmed that “at least” five additional cash market makers are expected in the next quarter, with more to come post-Q3.

“Moving forward, we already have a very healthy pipeline of both local and international interest […] We will see in the future I believe more of a mix in terms of participation. We’ve seen algo and HFT order flow increase, and we’ll start to see announcements very soon on more market makers to come, which will enhance market depth,” said Al Jaweini.

Last October, in a bid to grow its secondary market trading, Saudi Arabia’s Ministry of Finance and National Debt Management Centre (NDMC) signed up five new banks as primary dealers for its local government debt instruments. The banks – Standard Chartered, Citigroup, BNP Paribas, Goldman Sachs, and JP Morgan – all had an existing presence in the region.