Morgan Stanley’s Expanding Market-Making Role in Saudi Arabia: A Catalyst for Liquidity and Capital Market Development

Morgan Stanley Saudi Arabia’s recent expansion into market-making for 52 securities on the Tadawul and parallel Nomu market marks a pivotal step in the Kingdom’s capital market evolution. By posting continuous buy and sell quotes, the firm is tasked with maintaining liquidity for major entities like Riyad Bank, Saudi Arabian Oil Co., and Saudi Telecom Co., while adhering to stringent requirements such as minimum order presence (80% on the main market, 50% on Nomu) and bid-ask spread caps (0.65% for main market securities, 5% for Nomu) [1]. These obligations, enforced by Tadawul, aim to reduce trading costs, attract foreign investors, and stabilize prices for both blue-chip and smaller firms [3].

The firm’s role extends beyond liquidity provision. By ensuring tighter spreads and higher order sizes (e.g., SAR 250,000 minimums for main market securities), Morgan Stanley is addressing long-standing inefficiencies in Saudi markets. For instance, underfollowed sectors like technology and telecom—represented by firms such as Jarir Marketing and stc—now benefit from enhanced visibility and reduced volatility [5]. This is particularly critical for the Nomu market, where smaller companies often struggle with thin trading volumes. Morgan Stanley’s participation here, with a 5% minimum traded value threshold, could catalyze broader investor confidence in these firms [4].

The strategic alignment with Saudi Arabia’s Vision 2030 is evident. By fostering a more efficient capital market, the Kingdom aims to diversify its economy and reduce reliance on oil. Morgan Stanley’s market-making activities, which began in March 2025 and expanded in July 2025, are part of a broader effort to position Tadawul as a global investment hub [2]. The firm’s long-standing presence in the Kingdom since 2007 further underscores its commitment to this vision, leveraging its expertise to meet Tadawul’s evolving regulatory framework [4].

Critically, the success of this initiative hinges on execution. While Morgan Stanley’s obligations are clear, the firm must navigate challenges such as balancing liquidity provision with risk management, particularly in volatile sectors. Additionally, the effectiveness of Nomu’s 5% spread cap remains untested, as smaller firms may still face liquidity constraints despite the firm’s involvement.

For investors, the implications are twofold. First, tighter spreads and higher liquidity could reduce transaction costs, making Tadawul more attractive to both domestic and international portfolios. Second, the inclusion of underfollowed sectors in market-making programs may unlock new investment opportunities, particularly as foreign inflows grow. However, investors should monitor Tadawul’s performance metrics post-July 2025 to assess whether these structural changes translate into sustained market efficiency.

In conclusion, Morgan Stanley’s expanded role represents a calculated bet on Saudi Arabia’s capital market transformation. By addressing liquidity gaps and supporting Vision 2030, the firm is not only enhancing Tadawul’s functionality but also reinforcing the Kingdom’s ambition to become a regional financial leader.

Source:
[1] Morgan Stanley Saudi Arabia to act as market maker for 52 [https://www.arabnews.com/node/2606478/business-economy]
[2] Tadawul approves Morgan Stanley Saudi Arabia as market [https://www.arabnews.com/node/2593094/business-economy]
[3] Saudi Exchange Company announces the approval of [https://tadawulgroup.sa/wps/portal/saudiexchange/newsandreports/issuer-news/news-detail-wcm/?locale=en&newsId=8905]
[4] Morgan Stanley Saudi Arabia to act as market maker for 52 [https://www.arabnews.com/node/2606478/business-economy]
[5] Morgan Stanley's Market-Making Gambit: A Catalyst for ... [https://www.ainvest.com/news/morgan-stanley-market-making-gambit-catalyst-saudi-capital-market-renaissance-2507]