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M

arket participants 
play an important 
role in today’s 
ever-changing 
markets. A key 

market participant in an exchange’s 
trading structure is the Market Maker. 
Historically, the typical trading structure 
for equities involved market makers 
with a responsibility for maintaining an 
orderly market in a stock, such as the 
specialist at the NYSE. Market makers 
are known by different names. On the 
London Stock Exchange, market makers 
are called jobbers, while on the New 
York Stock Exchange they are now 
known as Designated Market Makers 
(formerly known as ‘specialists’). 
With the evolution of market structures 
towards electronic limit order markets, 
where participants provide liquidity 
themselves, the traditional market maker 
seemed destined for the scrap heap. 
Recently, though, market makers have 

been reappearing. In several electronic 
limit order markets, market participants 
have appeared with promises to maintain 
an orderly market in a particular stock, 
for example by keeping the spread at or 
below some agreed upon maximum. The 
innovation of these Designated Market 
Makers (hereafter DMMs) is that they 
charge a fee to the firm that has issued the 
equity to keep an orderly market in the 
firm’s stock. These innovations started in 
the European markets, but has now also 
been proposed for the second largest US 
market, Nasdaq.

A market maker is a company that is 
always ready to buy or sell a financial 
asset at an openly quoted price on a long-
term basis. Market makers participate in 
transactions directly as either the seller or 
buyer. To a large extent, they determine 
the buy or sell price for specific trading 
instruments. The main role of a market 
maker is to provide liquidity, or create 

opportunities for other market participants 
to buy or sell a fairly large range of stocks, 
currencies, futures and other trading 
instruments at an openly quoted price. 
As they always act as the counterparty to 
a transaction, market makers are risking 
their own funds; for this reason they 
engage in various strategies to insure 
(hedge) against losses. Market Makers 
operates both in the currency market as 
well as the stock market:

Market makers are known 
by different names. On the 
London Stock Exchange, 
market makers are called 
jobbers, while on the New 
York Stock Exchange they 
are now known as Designated 
Market Makers (formerly 
known as ‘specialists’).

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