Characteristics of Market-oriented Business System
First, improve liquidity and enhance market attractiveness.
Companies listed on GEM are generally small in scale and high in risk, which will greatly affect the enthusiasm of investors and securities companies to participate. Especially in the case of market downturn, investors are more likely to lose confidence. Perhaps there will be an investment boom in the early days of the establishment of the GEM, but this does not guarantee that the market will not be depressed in the future.
If there are market makers, they will bear the funds needed to make the market, so they can handle any business at any time and activate the market. Buyers and sellers don't have to wait for the other party to appear, as long as the market maker comes forward and assumes the responsibility of the other party, the transaction can be carried out. Therefore, market makers ensure that trading activities in the market are not interrupted, even if the market is at a low point.
Second, effectively stabilize the market and promote its balanced operation.
Market makers have the responsibility to participate in market making when the stock price rises and falls sharply, which is conducive to curbing excessive speculation and playing the role of market "stabilizer". In addition, the competition among market makers also ensures the stability of the market to a great extent.
Companies listed on the Nasdaq market must have at least two market makers to quote their shares, while some large-scale and actively traded stocks often have more than 40 market makers. On average, there are 12 market makers for each security in Nasdaq market. In this way, the problem of information asymmetry in the market will be greatly alleviated, it is difficult for individual institutional investors to obtain huge profits by manipulating the market, speculation in the market will be greatly reduced, and the phenomenon of so-called bookmakers secretly manipulating stock prices in traditional trading methods will be reduced.
Third, it has the function of price discovery
Market maker's quotation is formed on the basis of comprehensively analyzing the information of all market participants and measuring their own risks and benefits. Investors make decisions on the basis of quotation, which in turn affects the quotation of market makers, thus pushing the price of securities closer to its actual value.
Correct the imbalance of buying and selling orders
In the pure order-driven market, there is often an imbalance between buying and selling orders. Under the market maker system, when this happens, market makers will fulfill their obligations and undertake buying or selling orders, so as to alleviate the imbalance of buying and selling orders and the corresponding price fluctuations. If the price paid by the buyer is temporarily higher than that paid by the seller, the market maker is obliged to sell it with his own account.
Fourth, curb price manipulation.
Market makers generally have strong financial strength and follow-up financing ability, high value analysis and judgment ability, and make quotations and transactions on this basis, which makes the manipulators have scruples. On the one hand, the manipulator is unwilling to "sedan chair", on the other hand, he is worried that the behavior of market makers will depress market prices.
It is worth noting that the market maker system can restrain the price manipulation of other traders, but because of its strong strength and interest-driven, it can obtain illegitimate profits through its own behavior or the joint efforts of market makers. This phenomenon has been discovered in Nasdaq market and needs to be prevented by monitoring the behavior of market makers.
Market maker system and transaction driving mechanism
6. Command-driven system and quotation-driven system
At present, there are mainly two kinds of securities trading mechanisms in the world: instruction-driven system and quotation-driven system.
The complete market maker system is a kind of securities and futures trading system which is different from the bidding trading mode. A complete market maker system has two important characteristics:
First, all customer orders must be bought and sold by market makers with their own accounts, and there is no direct transaction between customers and customer orders.
Second, market makers must quote the buying and selling price in advance, and investors can only place orders after seeing the quotation.
Therefore, in financial theory, the market mechanism that implements the market maker system is called quotation-driven mechanism. Corresponding to this is the order-driven system, also known as the bidding trading system and the entrustment-driven system. It means that buyers and sellers send orders to their respective brokers (members of the exchange), and then the brokers send the orders to the exchange. On the basis of summarizing all trading orders, the trading system of the exchange matches the transactions according to the principle of price priority and time priority, and completes the transactions. Under the order-driven system, the market price is driven by the buying and selling orders issued by investors and generated through bidding. The bidding matching method can be either the traditional public bidding method or the computer automatic matching method. The basic feature of the auction market is that the formation of securities trading prices is directly determined by buyers and sellers, and investors trade with other investors who are uncertain, rather than market makers. The flow of buying and selling orders is the fundamental driving force to promote market operation and price formation. At present, this trading system is adopted by two major domestic stock exchanges and three major futures exchanges.