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MARKET PULSE 

FEB-2018

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written approval of LankaBangla Securities Limited.

The three-way partnership 
is valuable to all parties: the 
ETF provider, the investor 
and the market maker. Not 
only do market makers play 
a key role in the creation and 
redemption process for ETF 
units, but they also provide 
vital liquidity and proactive 
oversight for ETFs, ensuring 
the price investors pay to 
buy or receive when selling 
is fair and reflective of the 
value of the ETF’s underlying 

securities.

Buying and Selling Units to Investors

Market makers are tasked with providing 
ETF liquidity to a given market. They do 
so by providing units for sale on the stock 
exchange at asking prices, and then posting 
bid prices they will purchase units at, for 
investors wishing to sell. The bids and asks 
are themselves calculated based upon the 
underlying asset values, and the costs and 
fees associated with buying or selling all 
of the underlying securities inside the ETF.

A Valuable Partnership

The market maker fulfills other important 
roles in addition to providing liquidity and 
maintaining market equilibrium – they 
also help to ensure the market price of 
each ETF unit reflecting the value of its 
underlying securities intraday.

There are often multiple market 
participants with bids and offers on an 

ETF in the marketplace. Each market 
participant wants the opportunity to match 
buyers and sellers, and this competition 
drives them to post their very best bids and 
asking prices. Thus spreads not only reflect 
the market conditions (liquidity, etc.) 
of the underlying asset class, but can be 
improved even more than underlying asset 
class characteristics if there are multiple 
competing market makers providing 
liquidity on a given ETF.

The three-way partnership is valuable to 
all parties: the ETF provider, the investor 
and the market maker. Not only do market 
makers play a key role in the creation 
and redemption process for ETF units, 
but they also provide vital liquidity and 
proactive oversight for ETFs, ensuring the 
price investors pay to buy or receive when 
selling is fair and reflective of the value of 
the ETF’s underlying securities.

The Bangladesh Capital Market requires a market maker to build its stability. The market maker in general adds to the stability, 

liquidity and transparency  of financial markets and is therefore a desirable participant in emerging markets. Once we can establish 

that in the capital market, we will see how it automatically turns the market into a vibrant one, while increasing the transaction 

volume and eventually bringing stability into the market.