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MARKET PULSE 

FEB-2018

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their quotes cannot be more than 8% away 
from the NBBO for stocks in the S&P 500 
or Russell 1000 indexes. For other stocks 
the maximum amount their quotes may be 
away from the NBBO is 28% for stocks 
trading at or over $1 and 30% otherwise. 
In addition to DMMs, the NYSE also 
allows for another class of market maker 
called a Supplemental Liquidity Provider 
(SLP) with lesser quoting requirements. 
SLPs are required to quote at the inside 
10% of the day and must add liquidity of 
at least 10 million shares a day. DMMs 
and SLPs receive larger rebates than other 
traders for providing liquidity. 

In contrast to the NYSE, NASDAQ 
OMX’s U.S. market makers are required 
to maintain continuous two sided quotes 
of at least 100 shares but are not required 
to be at the NBBO any portion of the day. 
Like the NYSE they have the same three 
tiers and definitions for the maximum 
percentages they are allowed to be away 
from the NBBO. On NASDAQ only 
registered market makers are allowed to 
transmit bids and offers to be displayed 
on the NASDAQ system. However, one 

benefit of being a market maker in the 
US is the ability to short stocks without 
locating the physical shares. 

Of the remaining U.S. stock exchanges: 
BATS, Boston Stock Exchange (BX), 
Chicago Stock Exchange, Direct Edge, 
National Stock Exchange, NYSE ARCA, 
and Philadelphia Stock Exchange (PSX) 
all but PSX have market makers with 
quoting requirements similar to those 
described for NASDAQ. PSX specifically 
states that they do not have market 
makers and is therefore a limit order 
driven market. Of interest is the fact that 
the Chicago Stock Exchange specifically 
does not allow their market makers to 
trade as agent – only principal. None of 
these arrangements involve any exchange-
based compensation or privileges.  

The other major North American exchange 
is The Toronto Stock Exchange (TSX.) 
The TSX refers to their market makers as 
Responsible Designated Traders (RDTs). 
RDTs are required to maintain a goal 
(average) spread for minimum sizes and 
be willing to fill any incoming order up 
to the minimum guaranteed fill. RDTs 

A broker is an 

intermediary who has a 

license to buy and sell 

securities on a client's 

behalf. Stockbrokers 

coordinate contract 

between buyers and 

sellers, usually for 

a commission. A 

market maker, on 

the other hand, is an 

intermediary that is 

willing and ready to 

buy and sell securities 

for a profitable price.