Much of the policy conversation around Singapore’s equity market has focused on demand: attracting more fund managers, channelling more institutional capital and encouraging more listings. Those are necessary conditions for a vibrant market, but they are not sufficient. Capital that cannot be deployed at a reasonable cost is capital that stays on the sidelines, regardless of how much of it is allocated. The GEMS Market Making Grant is significant precisely because it addresses the supply side of liquidity—the willingness of someone to stand on the other side of a trade at a predictable price.
The Anatomy of an Execution Cost
When an investor buys or sells a stock, the visible commission is only one component of the total cost. The bid-ask spread represents the compensation demanded by the counterparty for providing immediacy. In a liquid large-cap stock, that spread may be a few basis points. In an illiquid small-cap, it can be several percentage points, and the quoted size may be too small to absorb the intended trade. The investor then faces a choice: pay the spread, break the order into smaller pieces and accept timing risk, or abandon the trade altogether. For a fund with a mandate to hold a diversified portfolio of Singapore equities, these frictions compound across dozens of positions, turning an apparently attractive asset class into an operationally expensive one. Market making directly attacks the spread component by introducing competition for order flow and a standing commitment to quote two-sided prices.
Why the EQDP and Market Making Are Complementary, Not Redundant
The Equity Market Development Programme has allocated S$5.4 billion across 14 asset managers to crowd private capital into Singapore-listed stocks. That demand-side push is already showing results: average daily trading volumes have exceeded S$2 billion, more than 40% higher than in 2025, and turnover among the Next 50 constituents has risen 93%. But fund flows without functioning aftermarkets create a different problem. If a manager wants to build a position in a qualifying small-cap but the spread is too wide, the flow either concentrates in the largest names or gets deployed elsewhere. Market making ensures that the demand created by the EQDP can actually reach the segment it is intended to support. The two measures are designed to work in sequence: capital creates the potential for trading, and market making reduces the friction that prevents that potential from being realised.
The Data Behind the Friction
The scale of the execution-cost problem is visible in the divergence between headline market activity and small-cap participation. In FY2026, SGX’s daily average securities value reached S$1.8 billion, the highest in 18 years, yet the small- and mid-cap segment’s daily average trading value, despite a 155% jump to S$310 million, remains a fraction of the total. The improvement is real, but it started from a very low base. Institutional net buying in the segment tripled to S$606 million, which suggests that when frictions are reduced, demand responds. The market-making grant is an attempt to make that response structural rather than episodic. For a detailed examination of the structural constraints that market makers and liquidity providers face in Singapore, The Edge Singapore’s reporting provides useful context: https://www.theedgesingapore.com/news/markets/wheres-liquidity.
The Durability Question: Subsidy Versus Infrastructure
A grant that runs until December 2028 is a temporary intervention, not a permanent market structure. The critical question is whether the quoting behaviour it incentivises becomes self-sustaining once the incentive is removed. History suggests that market-making programmes are most durable when they catalyse a broader change in market microstructure—greater free float, more diverse ownership, improved disclosure and a stronger research ecosystem. If the grant merely produces quotes without altering these underlying conditions, the liquidity may evaporate when the funding ends. MAS’s commitment to reviewing the eligible stock list regularly is a recognition that the intervention must adapt to changing market conditions rather than ossify into a permanent subsidy. The measure’s success will ultimately be judged by whether the stocks in the programme continue to trade with reasonable spreads and depth after the grant has served its purpose.
A Market That Works for Both Sides
Execution cost is not a niche concern for quantitative traders. It affects every investor who wants to allocate capital to Singapore’s smaller listed companies, and every company that wants its shares to reflect its fundamentals rather than its trading volume. By targeting the spread directly, the market-making grant addresses a barrier that capital inflows alone cannot remove. Whether it succeeds will depend on how effectively it is integrated with the broader ecosystem of demand, research and listing quality that makes a market genuinely liquid.
