Market Makers – Concept


Market makers are market participants entrusted with the task of infusing liquidity into the market structure by providing two-way (both buy and sell) quotes for all scrips they act as market makers to.

By proving 2-way quotes, the market makers stand ready to buy from and sell to investors willing to transact in a given security.

The concept of market making is better explained with the help of an example:

The shares of EMERGING Ltd are quoted on the SME segment of the National Stock Exchange (NSE). Mr BROKE  is in need of money and wishes to sell the 1000 shares that he holds in the company. However, there are no buyers available as this scrip is not actively traded in the exchange.

It is here that a market maker will kick in and buy the shares offered by Mr BROKE. The market maker will thus infuse liquidity into the trading structure.

Market makers are a common feature of over the counter” (OTC) markets and SME platforms offered by major stock exchanges.

Note that Market Makers may even compete with other Market Makers to offer better quotes to the investors.

Leave a Reply