ANALYSIS: Saudi Arabia aims to improve derivatives market liquidity with structural enhancements

From a strengthened market making framework and reduced transaction commissions to better connectivity solutions, a series of structural enhancements announced on August 19 are part of Saudi Exchange and Securities Clearing Center Company (Muqassa)’s efforts to further develop the Saudi Arabia’s derivatives market.

The enhancements apply to existing MT30 Index Futures and Single Stock Futures, and introduce a number of measures aimed at strengthening market depth, attracting participation, and improving overall market functionality.

Christopher Jenkins, chief of derivatives at Saudi Exchange, said that since launching on August 19, there’s already been a buildup in liquidity and activity in the Saudi derivatives markets for index and single stock futures.

“It’s been a great response with over 6000 contracts and SAR270 million (£43 million) notional traded since launching five days ago,” said Jenkins. “Previously, these products weren’t trading and the liquidity just wasn’t there which is why we’ve gone through with the enhancements to ensure that there is a solid base to grow our derivatives market for domestic and international investors.”

Jenkins said that interest for trading has come from a mix of domestic and international participants across institutional investors and proprietary trading firms.

“We want to ensure that the new market offers opportunities for domestic and international participants and we’re able to do that through the support of our market makers,” he said.

As part of this phase, Saudi Exchange has signed agreements with SNB Capital on behalf of multiple derivatives market makers to support liquidity provision in futures contracts. Participating firms include Corvus, Binevenagh, BLS Futures, Eighteen Eight Solutions and MET Traders.

From a commercial perspective, transaction commissions for both MT30 Index Futures and Single Stock Futures have been reduced across trading, clearing, and regulatory fees. Final settlement fees have also been lowered.

A full waiver of futures transaction and final settlement fees for one year has been introduced to support early participation and market activation. Further fee waivers have been implemented by Muqassa, including additional segregated accounts and give-up/take-up services.

While the enhancements have all been equally fundamental building blocks in building liquidity, from a commercial perspective, Jenkins said that the fees and commercial commitments have been instrumental, particularly given that fees have been reduced by 70% along with fee waivers on transaction and clearing.

“The key is for liquidity to build on liquidity,” said Jenkins. “With the intricacies around tick sizes and margin requirements, we want to ensure that they’re in line with global standards, including enhanced netting both within and between products.”

Updates to Single Stock Futures specifications include an increase in tick value from 0.05 to 0.1, removal of the margin multiplier, and a revised daily settlement price methodology, aligned with international best practices.

Margin levels have been comprehensively reviewed, with enhanced margin netting availability across maturities and futures products to improve capital efficiency. A margin calculator has also been deployed on Muqassa’s website to support members in understanding margin requirements across all listed derivatives products.

FIS connectivity solutions have been introduced to support the trading and clearing of exchange-traded derivatives within the Saudi capital market. The solution enables real-time visibility of transactions, collateral positions, and margin monitoring through integrated digital platforms in collaboration with FIS, enhancing back-office efficiency and operational transparency.

FIS was selected given the existing connectivity with Muqassa and also because many large institutions already use the technology.

“The key is to ensure sustained growth through enhancements across the ecosystem, from the front to back end,” said Jenkins.

Looking ahead, plans are already in the works to make further enhancements for options.

“The initial phase of enhancements is just the beginning but is critical,” said Jenkins. “We’ll follow the same path for the next five single stock futures as well as single stock options which is expected to launch in the near future.

“We won’t rule out additional instruments and products for more asset classes that are in line with market demand but our focus is to be successful with the products that we already have first.”

Fastmarkets in July launched three Saudi ferrous scrap price indices, responding to growing demand for more localised pricing benchmarks in one of the world's fastest-growing steel markets.

Exegy in June announced the expansion of data coverage on its Axiom platform to the Middle East and said the additions further extend clients' access to global, low-latency normalised market data.