The seven key qualities of a Market-Maker

The seven key qualities of a Market-Maker

A true market-maker supports the market throughout the trading day, come hell or high water. Whenever investors face an elevated period of event-driven volatility, such as Brexit, the speed and consistency with which market-makers create two-way liquid markets, by continuously quoting bid and offer prices, is often overlooked. 

MiFID II regulation rightly insists on transparency from all industry participants and one such requirement is that investment firms must publish annual reports which detail their top five trading venues. These reports offer unique insight into the venue choices of investment firms and provide a suggestion of the liquidity and execution quality available at these chosen venues, which include market-making firms. The reports highlight the important role market-makers play within financial markets.

Below I outline seven qualities asset managers and brokers should look for when partnering with a market-maker.

Price improvement

Genuine, client-centric market-makers have always had a key role in delivering on the spirit of MiFID II by generating value for investors when facilitating their business, typically at improved prices. Achieving best-execution means assessing several factors, not least price improvement. Investors benefit from high quality execution performance due to the market-maker's ability to frequently improve on the benchmark price through capital commitment and diverse distribution channels.

For the retail audience, price improvement is the determining factor 99% of the time, given the relative size of trades. However, for institutions, price improvement must be assessed alongside other factors such as accessibility of liquidity, likelihood of settlement, information leakage and market impact.

Depth of liquidity

As volatility returns to the market and macro fears loom, the depth of liquidity is more important than ever. A high-quality market-maker should have a comprehensive mix of liquidity from a diverse range of sources. Institutional business, corporate programmes (often via registrars), retail order-flow, platforms, hedge-funds, family offices, dark pools and other trading venues, in addition to the market-makers' own capital commitment, combine to provide the depth of liquidity required for an effective market dynamic and hence good outcomes for its clients.

Service offering whatever the financial climate

Providing a consistently reliable service is the cornerstone of building long-term trust in the institutional and retail markets. Market-makers should demonstrate meaningful liquidity and the willingness to make a price in a range of sizes, even during the most volatile market conditions.

From the Asian crisis (1997-1998) and the Dotcom bubble (1999-2000) to the most recent financial crisis, market-makers have faced testing conditions. But it is in these climates of elevated volatility and extreme market conditions that market-makers must be able to show a commitment to making two-way prices and reduce the market impact of large orders. This continuity of high-quality execution is how to build a reputation as a trusted market maker. 


A good market-maker enhances its service offering through being flexible in a number of areas. Offering non-standard settlement dates and the ability to settle in multiple currencies are two such facilities offered to clients. Furthermore, aggregating all trades done by a client with one settlement price can generate huge cost savings. Instead of receiving individual charges for each trade executed throughout the day, clients can reduce costs by settling in one aggregated shape at an average price at the end of the trading day.

Broad coverage

It would be easy to pick and choose a handful of ‘favourite' stocks, but for a market-maker to offer a thorough service then a broad range of securities should be available to its clients.

Provision of liquidity and willingness to make a price in a range of sizes should not only apply across the spectrum of the UK market, but also in European and North American securities, even during the most volatile market conditions - including in Fixed Income, Investment Trusts and ETFs. This is the hallmark of a market-makers commitment to client satisfaction. 

Immediacy of dealing

Immediacy of dealing is one of the facilities that many clients desire when placing a trade. Providing a continuous presence, with an appropriate depth of liquidity, allows quality market-makers to offer this service to those who require it. So, an institution administering a share-plan for example can offer real time trading to their clients and a good market-maker will facilitate this functionality. 

Bespoke technology solutions

Investors and institutions need to adapt to tech transformation in this time of unprecedented change. A good market maker should harness technology to continually evolve its contribution. Being able to provide high quality functionality, often with bespoke solutions is important if a market-maker is to excel with its service offering. Powerful technology coupled with the expertise of experienced traders is the optimal blend for a quality market-maker to offer excellent client service.

Ben Jowett, Head of Business Development & Client Sales at Winterflood Securities