Saudi Arabia is ramping up efforts to lure high frequency trading firms — a campaign that’s already brought in major players from Citadel Securities to Hudson River Trading — as it looks to bolster activity on the Middle East’s largest stock market.
The Saudi Tadawul Group Holding Co is working with some of Wall Street’s fastest and most secretive HFT firms to incorporate their feedback as it revamps its derivatives market framework, according to people familiar with the matter. The operator of the kingdom’s stock exchange is also expanding its international roadshows — widening outreach beyond the US and Europe to Asian markets such as Japan and India, the people said, requesting anonymity to discuss private information.
Momentum is already building. Citadel Securities and Hudson River Trading are seeking to ramp up operations in the kingdom, while Tower Research Capital is among market-making firms testing their algorithms on the exchange, some of the people said.
The firms haven’t disclosed details of their activity on the Saudi exchange and don’t appear among its official market makers. Still, their involvement signals that even the most latency-sensitive international players are deepening their footprint in the kingdom.
Spokespersons for Citadel Securities and Hudson River Trading declined to comment while those for Tower Research didn’t respond to requests for comment.
Saudi Arabia’s outreach to algorithmic and quant-driven trading firms began around the time of oil giant Aramco’s US$26 billion IPO in 2019, the people said, and has since dovetailed with the kingdom’s Vision 2030 agenda to expand its capital markets and boost foreign participation.
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Bolstering Infrastructure
In 2023, Tadawul’s technology unit, Wamid, launched co-location services that allow trading firms to host servers adjacent to the exchange’s matching engine — a critical infrastructure upgrade for high-frequency strategies. Tadawul also tapped financial technology provider Pico to help roll out the infrastructure and link the bourse to other markets.
The Saudi Exchange has also established a dedicated division to manage relations with international investors, which has helped strengthen ties with clients including quants, hedge funds and HFTs, said Chief Executive Officer Mohammed Al-Rumaih.
“We already have many of these clients on the exchange from the US, Europe and the UK, and we see the biggest growth opportunity now coming from Asia,” he said.
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Tadawul is the Gulf’s largest stock exchange, with the average daily traded value of equities standing at about US$1.7 billion as of April end, according to the exchange.
Shares of the exchange trade at one of the richest valuations among global bourse operators, reflecting investor bets on a surge in volumes aligned with the kingdom’s broader economic ambitions. The stock trades at 34 times forward earnings — well above peers such as CME Group Inc. and Deutsche Boerse AG.
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Since launching co-location services, “tier 1” HFT firms are now well established in the kingdom, said Yazeed AlDomaiji, CEO of Wamid. “We’re now in the process of developing the next phase of our co-location offering and expanding to target tier 2 and tier 3 HFTs,” he added, without naming specific firms.
High-frequency trading accounts for up to 25% of daily volume on the Tadawul, according to exchange officials — well below the average seen on global bourses. For example, Nasdaq Inc. says it’s estimated that 50% of stock trading volume in the US is driven by such activity.
Market depth and turnover too remain modest by global standards, limiting scalability for larger electronic strategies. In response, Tadawul has enlisted firms such as Morgan Stanley Saudi Arabia and Merrill Lynch KSA as registered market makers to improve liquidity and price discovery.
Bringing in more HFT firms will be key to that effort, as these firms can deploy proprietary trading books without the constraints that apply to banks.
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Tadawul is also pursuing other initiatives, including the launch of more exchange-traded funds tracking Saudi shares, and efforts to bring more companies to market.
Products such as single-stock futures and index-linked contracts are also gaining traction in Saudi Arabia, gradually expanding the toolkit available to quantitative and multi-asset traders. The growing product set along with the planned overhaul of the derivative segment is expected to support more complex HFT strategies that arbitrage inefficiencies across cash and derivatives markets.
“With the infrastructure falling into place, we expect liquidity to increase significantly,” said Jarrod Yuster, founder and CEO of Pico. “In five years, volumes on the exchange could look completely different.”
