Market Making Activities
Chapters in this video
- 0:00 DMM as liquidity provider: the stressed retail manager analogy
- 1:38 Two-sided quote obligation and the one-sided exam trap
- 2:20 Market-wide circuit breakers: levels, triggers, and the 3:25 PM cutoff
- 4:03 Firm quotes versus subject quotes: which binds the market maker
- 5:04 Principal capacity and markup versus agent capacity and commission
- 5:53 Why a firm cannot be both principal and agent in one transaction
- 6:18 Wash sales and matched orders: fake volume, different mechanics
- 7:05 SEC order handling rules and trade reporting facility (TRF) requirements
- 7:48 Rapid-fire exam recap
What this video covers
- Why a Designated Market Maker (DMM) must provide continuous two-sided quotes, and why a one-sided quote would fail the fair and orderly market obligation
- How market-wide circuit breakers are triggered by S&P 500 percentage declines, and why the 3:25 PM ET cutoff applies to Level 1 and Level 2 halts but not to Level 3
- What distinguishes a firm quote from a subject quote, and which one creates an immediate trading obligation
- The difference between principal capacity (markup or markdown from inventory) and agency capacity (commission for routing), and why a firm can never wear both hats in the same transaction
- How wash sales and matched orders each create false volume appearance, and why beneficial ownership change separates the two violations
- What the Securities and Exchange Commission (SEC) order handling rules require market makers to display for customer limit orders in National Market System (NMS) securities
- Where over-the-counter (OTC) trades in NMS stocks must be reported, and which facility handles that reporting
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