Market Makers

Robert A. Schwartz () and Lin Peng ()
Additional contact information
Robert A. Schwartz: Baruch College of the City University of New York
Lin Peng: Zicklin School of Business, Baruch College, CUNY

Chapter 38 in Encyclopedia of Finance, 2022, pp 1007-1010 from Springer

Abstract: Abstract The primary focus of this chapter is on market maker services, revenues, and costs. A market maker’s basic function is to service the public’s demand to trade with immediacy by continuously standing ready to buy shares from customers who wish to sell, and to sell shares to customers who wish to buy. Additionally, the market maker helps to stabilize prices and to facilitate reasonably accurate price discovery. Further, a special type of market maker, a stock exchange market maker, fulfills the role of an auctioneer. The bid-ask spread is the classic source of market maker profits, while the costs of market maker operations include: order processing, risk bearing (the cost of carrying an unbalanced portfolio), and adverse selection (the cost of trading with a better informed participant). The entry further considers the competitive environment that market makers operate within, and concludes with the thought that institutionalization, the advent of electronic trading, and globalization of the equity markets have led to major changes in market maker operations in the recent past, and will continue to do so in the coming years.

Keywords: Adverse selection; Bid-ask spread; Competitive environment; Electronic trading; Immediacy; Market maker; Order processing; Price stabilization; Price discovery; Risk bearing (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-91231-4_38

Ordering information: This item can be ordered from
http://www.springer.com/9783030912314

DOI: 10.1007/978-3-030-91231-4_38

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().