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MARKET MAKING

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Market Making is a process of infusing liquidity in securities that are not actively traded. 

There are thousands of companies listed on the Indian Stock Exchanges only few of them are actively traded. For providing liquidity to the illiquid scrips, Market Makers are required to provide two way quotes. 

A market maker puts up a buy quote and sells quote simultaneously.

Market Makers are responsible for creating and enhancing the demand and supply situation in the particular securities. Market makers are Merchant Bankers willing to make a secondary market in securities through selection and specialization. 

They act as dealer – cum – stockists and display bid and offer price without charging any commission or brokerage.

Example: If a market maker gives a bid ask quote of Rs.1100 – Rs.1000 (which means the maker will buy from the market at 1000 & sell at 1100), the profit of market maker is Rs.100/- per share.

In short, a market maker is responsible for enhancing activities in a few chosen securities. The market maker provides buy and sell quotes for keeping activities in the particular securities. 

The Market makers are allowed to buy and sell at a differential rate ranging from 3% to 10%. In US stock market like NASDAQ & NYSE, the market makers are very active even for good companies like Oracle, Cisco Systems and Dell Computers etc.

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