A market maker is a
stock brokerage firm that is a listed member of
FINRA (Financial Industry Regulatory
Authority), formerly known the National Association
of Securities Dealers (NASD), that
provides a buy and sell price on a given inventory
of stocks, on a regular and predictable basis, and
at a publicly displayed and quoted price.
The act of providing a way or mechanism for all
interested parties to buy or sell securities,
creates a market, therefore the term Market Maker.
Of course, the profit motive of the market maker is
to realize gains from the bid and offer spread.
Since the market maker firm accepts the risk of
holding securities that could lose value before they
are sold, the gains realized from the spread is
In the United States there are many market
firms, about 2,000 at last count, that service the
needs of the stock market. Many USA-based exchanges,
such as the NYSE (New York Stock Exchange) and the
American Stock Exchange (AMEX) have specialist
market makers that officially regulate the trading
of particular stocks or securities. Other exchanges,
such as the NASDAQ (National
Association of Securities Dealers Automated
Quotations), have over 500 competing market
makers with posted buy and sell prices to
provide their client's order flow for any number of
Market makers provide for the efficient
flow of the markets by providing the underlying
liquidity for buy and sell transactions, infusing
capital into the markets to provide the supporting
stability needed for the orderly execution of the
markets. Market makers give quotes on buy and sell
prices for financial stocks and commodities, making
a profit on the bid/offer spread. Market makers are
compensated by providing liquidity in the market.
It would be extremely time consuming and next to
impossible for buyers and sellers of securities to
participate in transactions without the services of
a market maker. Since market maker firms
take a very big risk that the securities they
introduce into inventory could drop in value before
they can find a buyer, they make a profit from the
buy and sell spread. The fact that they take such a
huge risk, and could lose a large amount of capital,
inspires the profits accrued by their valued
services and keeps the markets operating smoothly.
Needless to say, friends and promoters of the
market maker method feel that the added
liquidity, the lesser volatility, and the orderly
operation of the market maker system is a plus for
the market in general.
Market Maker News & Blog
Market Maker 2.0
October 12, 2012
Traditionally market makers have been defined as a
broker-dealer firms who take on the risk of holding
a certain number of shares of stock and setting the
value for the purpose of trading them. Market makers
would give quotes to investors willing to purchase a
specific minimum number of shares, thus making a
market for said shares. Investors put a certain
degree of trust in the judgment of market makers
knowing they only take on stocks in which they have
a degree of confidence in.
However since the advancement of the digital age and
electronic trading there has been a re-making of the
market maker arena. The exclusive pricing knowledge
held by traditional quote-driven market makers is
now available to traders via order-driven market
makers. Now there are entire firms who engage solely
in computerized order-driven trading. While they are
less personal than the traditional market makers
they provide virtually instantaneous trades and
access to the full bid/offer spread.
There are merits to be found in both systems,
certainly the increased transparency of the supply
and demand of securities has created high-frequency
trading and leveled the playing field to a degree.
However there is still something to be said for the
pricing stability and predictable liquidity of the
more traditional market maker. The key is to
integrate them into a personalized trading strategy
that relies on the best of each approach.
What does a Market Market Maker do?
September 21, 2012
We offer a comprehensive look at market makers on
this page but many people still ask us; what does a
market maker do? How do they create a market for a
company’s stocks? Good questions.
A market maker is a broker-dealer firm that takes on
the risk of holding shares of stock then quotes the
buy and sell rate with the intention of matching a
buyer and seller based on those quotes. By having a
personal stake in the process a market maker is
motivated to move securities, but it also assures
they only take on stocks in which they see real
It is by providing the means to buy and sell,
coupled with their confidence in the stock by
holding a specific number of shares that helps a
market maker create a market for the stocks.
On a larger scale the instant, automated nature of
market maker transactions in both the quoting of a
public buy and sell price and offering a number of
shares facilitate client order flow.
Most often the market maker sells from their own
inventory closing a deal in just seconds, hopefully
for a profit in the bid/offer spread. Market makers
help the markets operate smoothly and efficiently.
We have a market maker directory so if you are
looking for market makers to file a Securities And
Exchange Commission Form 15c211 we have a list of
market makers that file 15c211's for a company that
wants to become a public company.
Virtu Financial Services Market Maker
September 18, 2012
Virtu Financial LLC is known as one of the most
active traders of stocks, commodities and other
securities in both the US and Europe. Their latest
acquisition is the market maker division of
Nyenburgh Holding BV located in Amsterdam, the
Netherlands. Virtu is based in New York but with
this deal they strengthen and expand their areas of
influence in the European exchange-traded funds or
ETF markets. Virtu inherits ongoing relationships
with ETF issuers, instruments buyers and sellers
including those of pensions and hedge funds.
Most ETF trading on European markets is on
over-the-counter transactions. However new rule
changes now move toward the US model where the
majority of trading is through stock exchanges. This
has created an opening for high-speed trading firms
such as Virtu and Getco LLC to grab a bigger piece
of the market makers pie.