Markets · 6 pages · 12 min

Why they do not do it as a favor

Makers quote because the spread pays for the risk, and they step back when that pay stops covering it.

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From the opening

Market makers post quotes because a well-managed spread compensates them for capital and for risk. They are not extending a courtesy, and when the compensation stops covering the risk they widen, cut size, or leave. The opening covers the spread is the pay, one-way flow raises the risk, and duties stop at the rule.

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Inside

The spread is the pay
One-way flow raises the risk
Duties stop at the rule
Rebates are still a business
Where the idea stops applying
A distinction worth keeping

Sources

Market-maker obligations and privileges
Adverse selection in quoted markets

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Why they do not do it as a favor

From the opening

Inside

Sources

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