Saudi Arabia's Capital Market Authority (CMA) is approaching the October 24 deadline for public feedback on proposed restrictions on algorithmic trading. The consultation, originally published on September 24, has attracted renewed attention following CMA Chairman Mazen Al-Sudairi's first public interview on October 4, in which he outlined his priorities for improving market fairness, efficiency and investor confidence.
The proposal would introduce a maximum order-to-trade ratio (OTR) of 20:1 for algorithmic trading in applicable securities on the Saudi Exchange (Tadawul). While intended to reduce potentially disruptive trading activity, the proposed restrictions also raise questions about their impact on market makers and overall market liquidity.
What Is the CMA Proposing?
Under the proposed framework, algorithmic trading activity would be subject to a maximum ratio of 20 orders for every completed trade during a trading day.
For example, an algorithm submitting 100 orders and executing five trades would have an order-to-trade ratio of 20:1.
The restrictions would apply to covered securities on Tadawul's Main Market, excluding those classified as having Very High Liquidity.
The CMA is also proposing additional supervisory requirements for financial institutions using algorithmic trading, including risk controls, algorithm testing and oversight procedures.
The consultation closes on October 24, 2026, with implementation proposed for November 1, 2026, subject to the final regulatory decision.
Why Could This Affect Market Liquidity?
Algorithmic trading plays an important role in modern financial markets, particularly through market makers that continuously provide buying and selling quotations.
Market makers frequently update their orders to reflect changes in prices, volatility, and market conditions. These adjustments may occur many times without resulting in an executed trade.
A restrictive order-to-trade ratio could therefore make it more difficult for market makers to update quotations, particularly in less-liquid securities where trading activity is limited.
Potential consequences include wider bid-ask spreads, reduced market depth and higher trading costs for investors.
For retail investors, a wider spread means potentially paying more when buying a security or receiving less when selling it.
However, the actual impact will depend on how the final rules calculate orders and whether registered market makers receive exemptions or differentiated treatment. The consultation concerns covered Main Market securities and should not automatically be interpreted as applying to ETFs.
A Balancing Act for Saudi Market Reforms
The consultation comes at a time when Saudi Arabia is pursuing broader capital-market reforms aimed at strengthening investor confidence, attracting institutional capital and improving market efficiency.
In his first public interview, Chairman Al-Sudairi emphasized the importance of market fairness, investor protection and market quality.
The proposed algorithmic trading restrictions fit within these broader regulatory objectives, although the consultation predates the interview and was not announced as a consequence of it.
The challenge for regulators will be distinguishing between excessive order activity that may disrupt markets and legitimate quotation updates that help provide liquidity.
With the October 24 consultation deadline approaching, market participants have an opportunity to provide feedback on the proposed threshold and its implications for market-making activity.
The final framework will help determine whether Saudi Arabia can strengthen algorithmic trading oversight while preserving the liquidity and trading efficiency needed to support its expanding capital markets.
