Qatar Exchange: Liquidity Provision Activity Offers Various Advantages For The Market & Investors
Qatar Financial Markets Authority has approved the liquidity provision scheme that can be carried out by the financial services firms, which are members in Qatar Exchange. This scheme will enable these firms to submit constant quotes for the sale or purchase of a particular security to increase its liquidity as per the controls and conditions set forth in the Liquidity Provider Agreement.
The first Liquidity Provision license was issued to The Group Securities Co. Other LPs are expected to follow in the coming months.
QE’s Chief Executive Officer Mr. Rashid Al Mansoori welcomed this step and commented: “this enhancement offers a number of advantages for the market and investors, such as increasing the trading volumes and liquidity of specific securities because the liquidity provider is obliged to provide constant bids and offers in the trading system. This activity will assist in reducing the prices volatility, promoting confidence among investors, fostering the listing of new companies and helping to ensure fair and orderly market”.
The Chairman of The Group, Hamad Bin Khalaf Al-Moudadi, welcomed the recent development and expressed The Group’s commitment to work as a liquidity provider for the majority of market shares. He added: “This is a helpful step in the development of the market.”
Liquidity providers accept the obligation to provide bids and offers in pre-determined securities and in exchange receive a volume related discount on the trading fees. These obligations are reflected in an agreement between LP and the exchange. LPs can enter this activity either at their own initiative or at the request of a listed company.
Some detailed information about the activity of liquidity providers is provided below:
Liquidity Provider: A financial services firm, which is a member in the Exchange and licensed to practice Liquidity Provision Activity. The Liquidity Provider offers prices on a continuous basis to buy or sell a specific security in order to increase liquidity in accordance with the regulations and conditions specified in the Liquidity Provider Agreement.
Liquidity Provider Rules: the Rules and requirements set by the Authority and shall be adhered to by the Liquidity Provider.
Liquidity Provider Agreement: The agreement signed between the Exchange and the Liquidity Provider, in which the Exchange determines the conditions that must be complied with by the Liquidity Provider. The agreement sets rules for identifying the securities allowed for trading by the Liquidity Provider and determining the Liquidity Provider duties in relation to securing prices of securities. The Agreement shall also:
a) Determines the conditions under which the Liquidity Provider offers the price and whether continuously or on demand.
b) Determines the minimum amount of shares that will be priced.
c) Specifies time duration for the Liquidity Provider trading on specific securities for the purpose of increasing their liquidity.
The Liquidity Provider and the Exchange shall adhere to any obligations or modifications imposed by the Authority on the Liquidity Provision Activity.
Liquidity Provision Agreement: The agreement between the Liquidity Provider and the Issuer, which specifies certain conditions that must be adhered to by the Liquidity Provider for the purpose of improving the liquidity of shares of the issuer.
The Exchange shall be responsible for overseeing the Liquidity Provision Activity through the following measures:
- Check liquidity provider''''s compliance with the rules and regulations governing the LP activity.
- Prepare a list of any measures that may be imposed on Liquidity Providers.
- Provide the liquidity providers with the supervisory framework and the list of sanctions.
- Collect data on Liquidity Provision Activity in order to assess the performance of these parties under the LP Rules, Liquidity Provision Agreements and Liquidity Provider Agreements, and determine the benefits resulting from the of Liquidity
Provision Activity in a given period with regard to the Liquidity Provider role.
The Liquidity Provider in the market will bring many advantages for both the stock exchange and investor alike, which can be summarized as follows:
Advantages to the Market:
1. Helps to increase trading volumes and liquidity of the shares because the Liquidity Provider is obliged to provide bids and offers on a continuous basis in the trading system.
1- Reduce the rate of fluctuation in prices.
2- Promote confidence among investors in the market.
3- Increase liquidity in the market, including less-liquid stocks
4- Increase the trading volume in the market.
5- Foster new listings and IPOs in the market
Advantages to Investors:
1- Enhance the liquidity and enable the investor to liquidate their investments in a better way.
2- Promote confidence among investors
3- Increase numbers of investors
4- Provide fairer prices