Information

A market maker is member firms (company or an individual) by the stock exchange to introduce liquidity and trade volume into stocks. Each market maker quotes both a buy and a sell price in a financial instrument or commodity for a guaranteed number of shares held in inventory. The market maker is compensated for the risk by being allowed to offer two-way quotes in the market, consisting of the buy and sell prices quoted together, the difference being the profit on the bid-offer spread, The market maker immediately sells from its own holdings or inventory of those shares once an order is received from a buyer, to complete the order.


Why Do Market Makers Matter?

Financial markets need to operate smoothly and efficiently. Investors and traders prefer to buy and sell easily. Have you ever thought about how it's possible to buy or sell a stock at a moment's notice?

Whenever an investment is bought or sold, there must be someone on the other end of the transaction. It’s very unlikely that you are always going to find someone who is interested in buying or selling the exact number of shares of the same company at the exact same time. This is where Market maker comes into picture. Market maker stands ready every second of the trading day with a firm ask and bid price. The market maker will actually purchase the stock from you, even if he doesn't have a seller. The same process occurs when placing a market order to buy shares of stock. Without market makers, there would likely be fewer transactions or longer time to find the exact matched of the transaction to be done and the overall markets would slow down. This, in turn, would reduce the amount of money available to companies and probably increasing the trading cost.

Features of Market Making :-

  • Ensure Asset Liquidity
  • Matching Orders
  • Keep the Trade volumes in order
  • Stability to the markets
  • Provide easy in valuation for the company’s share
  • Efficient pricing of a stock

How does a Market Maker work ?

A market maker holds large number of a given security due to which it is able to enter into high volume transaction and execute the orders in the market in a fraction of seconds at competitive prices. If investors are selling, market makers are supposed to keep buying, and vice versa. They are supposed to take the opposite side of whatever trades are being conducted at any given point in time. In this sense, market makers, as the name suggests, are able to satisfy the market demand for a security and facilitate its circulation. Market makers ensure efficient trading within its network. Market makers profit through the market maker spread. They are supposed to buy or sell securities according to what kind of trades are being placed, not according to whether they think prices will go up or down.

Roles & Responsibilities :-

  • The Market Maker shall be required to provide a 2-way quote for 75% of the time in a day.
  • The minimum depth of the quote shall be Rs.1,00,000/-. However, the investors with holdings of value less than Rs 1,00,000 shall be allowed to offer their holding to the Market Maker in that scrip provided that he sells his entire holding in that scrip in one lot along with a declaration to the effect to the selling broker.
  • Execution of the order at the quoted price and quantity must be guaranteed by the Market Maker, for the quotes given by him.
  • The Market Maker may compete with other Market Makers for better quotes to the investors.
  • The Market Maker has to start providing quotes from the day of the listing / the day for the respective scrip and shall be subject to the guidelines laid down for market making by the exchange.
  • The Market Maker has to act in that capacity for a period of three years.
Information

A market maker is member firms (company or an individual) by the stock exchange to introduce liquidity and trade volume into stocks. Each market maker quotes both a buy and a sell price in a financial instrument or commodity for a guaranteed number of shares held in inventory. The market maker is compensated for the risk by being allowed to offer two-way quotes in the market, consisting of the buy and sell prices quoted together, the difference being the profit on the bid-offer spread, The market maker immediately sells from its own holdings or inventory of those shares once an order is received from a buyer, to complete the order.


Why Do Market Makers Matter?

Financial markets need to operate smoothly and efficiently. Investors and traders prefer to buy and sell easily. Have you ever thought about how it's possible to buy or sell a stock at a moment's notice?

Whenever an investment is bought or sold, there must be someone on the other end of the transaction. It’s very unlikely that you are always going to find someone who is interested in buying or selling the exact number of shares of the same company at the exact same time. This is where Market maker comes into picture. Market maker stands ready every second of the trading day with a firm ask and bid price. The market maker will actually purchase the stock from you, even if he doesn't have a seller. The same process occurs when placing a market order to buy shares of stock. Without market makers, there would likely be fewer transactions or longer time to find the exact matched of the transaction to be done and the overall markets would slow down. This, in turn, would reduce the amount of money available to companies and probably increasing the trading cost.

  • Ensure Asset Liquidity
  • Matching Orders
  • Keep the Trade volumes in order
  • Stability to the markets
  • Provide easy in valuation for the company’s share
  • Efficient pricing of a stock
How does a Market Maker work ?

A market maker holds large number of a given security due to which it is able to enter into high volume transaction and execute the orders in the market in a fraction of seconds at competitive prices. If investors are selling, market makers are supposed to keep buying, and vice versa. They are supposed to take the opposite side of whatever trades are being conducted at any given point in time. In this sense, market makers, as the name suggests, are able to satisfy the market demand for a security and facilitate its circulation. Market makers ensure efficient trading within its network. Market makers profit through the market maker spread. They are supposed to buy or sell securities according to what kind of trades are being placed, not according to whether they think prices will go up or down.

Roles & Responsibilities :-
  • The Market Maker shall be required to provide a 2-way quote for 75% of the time in a day.
  • The minimum depth of the quote shall be Rs.1,00,000/-. However, the investors with holdings of value less than Rs 1,00,000 shall be allowed to offer their holding to the Market Maker in that scrip provided that he sells his entire holding in that scrip in one lot along with a declaration to the effect to the selling broker.
  • Execution of the order at the quoted price and quantity must be guaranteed by the Market Maker, for the quotes given by him.
  • The Market Maker may compete with other Market Makers for better quotes to the investors.
  • The Market Maker has to start providing quotes from the day of the listing / the day for the respective scrip and shall be subject to the guidelines laid down for market making by the exchange.
  • The Market Maker has to act in that capacity for a period of three years.