Note: The insights below were first published in the December 2025 issue of the Union of Investment Companies‘ The Investor Magazine which highlights the significant importance of liquidity in helping capital markets thrive, and the invisible yet invaluable role of market makers in making sure it happens.
We’re grateful to have been invited once again to contribute to their publication and discuss market making and liquidity as an active component of financial infrastructure within the context of Kuwait’s economy, among others.
Liquidity as infrastructure: Market Making and Kuwait’s capital market transition
Expert opinion by Andrew Jeffreys, Global CEO, Oxford Business Group
Kuwait’s recent market reforms have shifted liquidity from a passive market feature into an active component of financial infrastructure. Over recent years, policy changes, post-trade modernisation and targeted incentive design have created conditions in which formal market-making programmes can meaningfully affect tradability. The result is a clearer link between regulatory design and measurable improvements in market depth and price continuity.
Observed effects on tradability
A small number of company case studies illustrate the mechanics at work. Stocks that had previously exhibited low daily turnover have shown substantial increases in average daily traded volume after the appointment of market makers. In these examples, market makers account for a large share of daily activity, and their continuous quoting has coincided with promotions to higher exchange segments.
At the market level, the aggregate share of traded value executed by registered market makers has moved from negligible to double-digit percentages over a relatively short horizon, indicating that liquidity provision has become an important driver of overall turnover. These outcomes are not accidental. Market makers supply continuous two-way prices, which tighten bid-ask spreads, lower immediate transaction costs and improve execution quality for retail and institutional participants alike, by maintaining visible quotes during normal and stressed conditions, market makers reduce the incidence of large price gaps caused by temporary imbalances in order flow. For institutional allocators, the presence of organised liquidity providers reduces timing and informational risk when placing larger orders.
How market design and incentives interact
The Kuwaiti example highlights a practical design principle: technology and economic incentives must be deployed together. Operational changes that allow market makers to place multiple simultaneous orders and algorithmic quoting tools expand capacity and quoting precision. However, firms will commit capital and carry inventory risk only if commercial terms are predictable and adequate. For instance, through exchange rebates, fee waivers or seed capital arrangements…
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