As part of Bahrain Bourse's (BHB) efforts to develop the capital market in the Kingdom of Bahrain and enhance market liquidity, and following the approval of the Central Bank of Bahrain (CBB), Bahrain Bourse adopted a new set of Market Making regulation by introducing new Market Making Guidelines and simultaneously repurposing its existing Market Making regulation to exclusively regulate Liquidity Provision. The guidelines aim to regulate market making and liquidity provision in line with international best practices and standards, as well as distinguish between the role of Market Makers and Liquidity Providers. Accordingly, under the new regulatory framework, the current members under Market Makers will be shifted to 'Liquidity Providers'.
The guidelines will take effect on 28th July 2024, aiming for a timely implementation of the new regulations and smooth transition of current Market Makers to Liquidity Providers.
According to the new guidelines, there are two distinct types of membership aimed to enhance liquidity, Liquidity Providers and Market Makers. Under the Liquidity Provision Guidelines, authorized Liquidity Providers facilitate trading and improve transaction flows for a specific security by routinely placing buy and sell orders on behalf of the issuing company.
While under the Market Making Guidelines, authorized Market Makers facilitate trading and improve transaction flows as a principal through the initiation and administration of a type of fund for a specific security by providing continuous bid and ask quotes through an agreement-based arrangement directly with Bahrain Bourse, in which the agreement dictates the specifics of the quoting and market making obligations. Authorized Market Makers will be required to maintain an agreed upon level of activity in each selected security as prescribed under each of the following 6 categories: minimum market making activity period, minimum bid and ask order volume, maximum spread between bid and ask orders, timeframe for refreshing bid and ask orders, minimum presence of orders in the order book, and maximum position for trading.
Market Makers and Liquidity Providers require to be licensed by the Central Bank of Bahrain and authorized by Bahrain Bourse to undertake market making and liquidity provision activities, and meet the eligibility and registration requirements stipulated in the guidelines.
Speaking on the occasion, Abdulla Mohamed Janahi, Senior Director of Trading Operations commented, “The guidelines introduced are part of Bahrain Bourse's ongoing strategic efforts to increase market liquidity, enhance price discovery, and improve market efficiency through better execution quality. Improving liquidity is one of the core components in our overall market infrastructure strategy development."
“Market participants interested in registering as Market Makers/Liquidity Providers must contact Bahrain Bourse's Trading Operations Directorate and submit the required application available on Bahrain Bourse's website," Mr. Janahi added.
It is worth noting that a consultation paper on the new Market Making regulation was circulated in September 2023, and all related documents have been published on Bahrain Bourse's website. For further inquiries on registration for Market Marking and Liquidity Provision activities, members can visit Bahrain Bourse's website www.bahrainbourse.com or contact the Trading Operations Directorate on: 17108778 or email: [email protected].