Designated Market Makers (DMMs) - NYSE
Chapters in this video
- 0:00 The nightclub metaphor: one bouncer per stock
- 0:53 Rule of one: NYSE auction versus Nasdaq dealer market
- 1:48 Five core DMM obligations
- 2:28 Affirmative and negative obligations on the dance floor
- 3:32 Principal transaction: Danny buys Karla's panic sell
- 4:06 Agency transaction: matching Karla and Riley
- 4:55 The exam trap: both agent and principal on one trade
- 5:52 Conduct requirements and trading against the trend
- 6:52 Rapid-fire exam recap
What this video covers
- Why the New York Stock Exchange (NYSE) uses exactly one Designated Market Maker (DMM) per listed security, versus Nasdaq's multiple competing market makers
- The five core DMM obligations: fair and orderly market, price discovery, liquidity provision, volatility minimization, and auction management
- How the affirmative obligation forces a DMM to step in and trade with its own capital when public liquidity dries up
- How the negative obligation forces a DMM to step back when sufficient public orders exist, and why trading for its own account in that scenario is a violation
- The difference between a principal transaction (dealer, own inventory, disclosure required) and an agency transaction (broker, matched orders, commission earned)
- Why a DMM cannot act as both agent and principal in the same transaction, and how the exam tests this as double-dipping
- Why the affirmative obligation requires trading against the prevailing trend (buying on declines, selling on rallies) to reduce volatility, and how trading with the trend is a conduct violation
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