Liquidity is essential for a healthy financial market, lubricating efficient trading and ensuring market stability. It represents the ease with which assets can be bought or sold without significantly affecting their prices. High liquidity reduces transaction costs, fosters tighter bid-ask spreads, and enables market participants to enter and exit positions with minimal price impact.
A liquid market facilitates greater investor confidence by reducing the risks of holding and trading securities. When investors know they can sell their holdings without difficulty, they are more inclined to participate in the market.
Despite its reputation as a financial hub, the city-state faces spotty stock market liquidity. Trading activity on the Singapore Exchange (SGX) has been uneven. While large caps such as banks enjoyed healthy investors’ interest over the past year or so, smaller and mid-cap stocks stayed under the radar. Limited liquidity has deterred investors from engaging actively, causing many listed companies to trade at discounted valuations compared to their regional peers or even to delist and exit the exchange.
Maria Silvia Scetta, CEO and co-founder of DeltaBlock, believes that liquidity is also important for the fairness of the capital market. When a market has low liquidity — especially for the small- and mid-cap stocks while the liquidity remains high for the large-cap ones — retail investors then become stuck in a “powerless” situation. In this sense, the small trades in small- to mid-cap stocks can cause high volatility, or investors are unable to exit their positions in times of uncertainty, being in a position where they are unable to manage risk. In a liquid market, retail investors are able to follow market trends that will contribute to healthy liquidity and volatility.
“It is in the best interest for everyone to have better liquidity. That way, prices in the stock market are fairer when there are more actors agreeing on a price. If not, anyone with deep pockets can come in and set the price when there is low liquidity. The retail investor then loses power,” says Scetta.
She notes that when a market is not liquid, it becomes susceptible to market manipulation as the spread is wide. On the other hand, when there is more liquidity, it becomes more expensive and difficult to manipulate the market. “It is important to avoid these movements, as it causes companies to lose value. Eventually, this will result in economies losing value and capital flowing out of the country, as investors look to invest in more liquid markets outside.”
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To the rescue
If the Singapore market lacks liquidity, what can publicly listed companies, especially the smaller caps, do to boost their liquidity?
Market makers like DeltaBlock come in to offer their services that promise to boost the liquidity of stock without triggering volatility. They do so by tightening the yield spread. DeltaBlock is currently operational in France and Singapore. The company’s solutions merge both algorithms and deep market insights to enhance liquidity and visibility for listed companies significantly.
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It uses deep market microstructure expertise to enhance various dimensions of a stock’s liquidity. The approach improves bid-ask spreads and market depth, ensuring that the stock is more attractive to a wide range of investors.
Scetta explains that their proprietary algorithm helps listed companies reduce bid-ask spreads, enhance price stability and improve market depth. “By reducing the cost of trading and enhancing the immediacy with which transactions can be executed, we indirectly contribute to a healthier trading volume as a natural result of increased market efficiency and investor confidence,” says Scetta.
Somewhat similar to existing market makers but with a little more impact, Scetta explains that DeltaBlock’s goal is specifically to help companies increase their liquidity, unlike traditional market makers that have a stronger focus on the yield spread instead.
This is, however, somewhat different from companies conducting share buyback programmes, where they purchase a portion of shares from the market. “Share buybacks are only efficient in the short term. They do improve the demand and liquidity in the market, but only for a short while. Once the purchase is made, you usually don’t see the same demand in the market again, then liquidity drops and the price is impacted,” says Scetta, adding that this also reduces the free float in the market. While this should not have a short-term impact, it could bring about negative impacts in the long run.
Scetta shares that companies like DeltaBlock that offer liquidity to listed companies are rather popular and widely used in France. There, banks provide such services and may bundle them together when they sponsor a company to list on the exchange. In France, where such a service is mature and widely used, DeltaBlock works directly with banks and offers third-party services instead of approaching the listed companies directly.
In Singapore, this service is still relatively new and unfamiliar to most people. However, the company is working with relevant parties, such as SGX, to create a safe framework for operating in the republic’s capital market. Scetta explains that DeltaBlock complies with regulations set by SGX and the Monetary Authority of Singapore (MAS), which have been inputted into the trading algorithm.
Scetta shares that DeltaBlock approaches listed companies individually to offer their services. Thus far, it has signed up SGX-listed companies.
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One of them includes Oceanus Group , a company in global food security and trade. Speaking to The Edge Singapore, Duane Ho, CFO of Oceanus shares the group’s positive experience with DeltaBlock’s services. “DeltaBlock helps us ensure that our buy-sell spread is tight, which acts as a barrier to share price manipulation. Their services are engaged at a level that effectively prevents unjustified price movements while maintaining natural market behaviour,” says Ho.
Ho shares that in the past, there have been instances where an unprecedented share price spike has resulted in queries from SGX. “We want to prevent these unwarranted price spikes and drops,” adds Ho.
“A low liquidity environment is a concern for any publicly listed company, as it makes the stock more vulnerable to the actions of a single actor, potentially causing unjustified price fluctuations. Our goal is to ensure that share prices reflect broader market dynamics rather than being influenced by isolated actions,” says Ho.
Ebbs and flows
DeltaBlock is a relatively new company. Still considered a start-up, It was founded in 2019 by co-founders Scetta and Hamza El Khalloufi. Both met at Entrepreneur First, a start-up programme in France.
When they met, they clicked instantly. Scetta has about 10 years of experience in the capital markets, and El Khalloufi has a PhD in liquidity modelling. They came together to create the algorithm that will soon become DeltaBlock.
The duo incorporated their company in France, where French regulators have taken the issue of liquidity very seriously, causing a demand for such services within the market. “Our technology is French, but the US are the most advanced in this solution at the moment. In France, we leverage on our algorithm, which makes us one of the top players in the market,” says Scetta.
Once the solution had taken off in France, it was time to expand the business. And where else has a big liquidity issue in its capital market than the city-state? “We decided to enter the Singapore market as our entry point into Asia. The country had a good reputation, and it was easy for us to expand there. We launched in Singapore in 2021 and realised that the market was in great need of our services,” says Scetta, adding that since then, DeltaBlock has been in constant conversation with SGX, regulators and lawyers.
Moving forward, DeltaBlock is looking to expand into the Malaysia and Hong Kong markets in Asia and the UK market in Europe.
For now, DeltaBlock secured EUR1.25 million ($1.77 million) in funding from three investors in May 2024. They are Index Ventures, a British venture capital firm; Blast.club, a French venture capital firm made up of angel investors; and Entrepreneur First, the start-up programme where the two co-founders met. The fresh capital will bolster DeltaBlock’s R&D efforts and further the deployment of its innovative technology across new markets, including Singapore.
While the three investors are not actively involved in DeltaBlock’s day-to-day operations and merely offer support in visibility and connections, Scetta says DeltaBlock is looking to raise funds again in end-2025, but this time, she intends to bring in investors who can be more “hands-on” and proactive in the business.
