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Market maker

A market maker is a brokerage obliged to provide liquidity by continuously quoting bid and ask prices in a given security. Market making on Borsa Istanbul applies to warrants, certificates, ETFs and some illiquid shares.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • The market maker quotes two-way prices throughout the day within set maximum spread and minimum size rules and earns the bid-ask spread.
  • For investors a market maker means assurance of trading at a reasonable price at any time in products such as warrants and ETFs.
  • because the market maker sets the price, a warrant’s "market price" depends largely on the issuer’s model.

Formula / calculation

trading for its own account, the market maker becomes the counterparty to sellers when there are no buyers and to buyers when there are no sellers. The quoting obligation covers a set share of session time; temporary exemptions apply in extreme volatility.

Interpretation

For investors a market maker means assurance of trading at a reasonable price at any time in products such as warrants and ETFs. How close the quotes sit to fair value determines product quality.

Pitfalls

because the market maker sets the price, a warrant’s "market price" depends largely on the issuer’s model. Spreads can widen suddenly when the market maker steps back. Depth in market-made shares can still be limited.

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Frequently asked questions

A market maker is a brokerage obliged to provide liquidity by continuously quoting bid and ask prices in a given security.

trading for its own account, the market maker becomes the counterparty to sellers when there are no buyers and to buyers when there are no sellers. The quoting obligation covers a set share of session time; temporary exemptions apply in extreme volatility.

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