The development history of market makers
At present, China's securities and futures trading adopts the bidding trading system-investors transmit trading orders to the exchange through the network, and the exchange computer host matches the trading orders according to the principle of time priority and price priority to form a continuous trading price. According to the price formation mechanism under this trading mode, it can also be called order-driven system. In the era when there was no computer abroad 100 years ago, it was through the traders in the trading pool that the purchase and sale orders were matched by open bidding.
One obvious problem is that the efficiency of traders in processing orders is much lower than that of computers. In order to serve a large number of investors, OTC and market maker trading systems naturally came into being.
Corresponding to the order-driven system is the market maker system, which is called the quotation-driven system. Market makers provide investors with bilateral quotations for gambling transactions, and change the transaction price through the update of quotations. Because this method is very similar to casino makers, some people are skeptical about the market maker system.
type
Understanding different types of market maker systems and their advantages and disadvantages is of certain significance to practical application. Because in the process of introducing the market maker system, the futures market will inevitably face the choice of types for different varieties and situations.
According to the competitive characteristics, there are two types of market maker system: monopoly market maker system and competitive market maker system.
Monopoly market maker system, that is, there is only one market maker for each security, and the typical representative of this system is new york Stock Exchange. Monopoly market makers are the only traders who offer bilateral quotations for each security and enjoy corresponding rights. They must have strong comprehensive information ability, be able to accurately predict market trends, and usually get high profits because of their monopoly position. The advantage of this type is clear responsibility, which is convenient for the supervision and assessment of the exchange, but the disadvantage is poor price competition; Competitive market maker system, also known as diversified market maker system. That is, each security has multiple market makers, allowing market makers to enter and exit freely to a certain extent. The typical representative of this system is the "Nasdaq system" in the United States. Since 1980, the average number of market makers per unit of securities in this market is not less than 7. The latest data shows that each security has 65,438+00 market makers, and some actively traded stocks need 40 or more market makers. The advantage of the multi-market maker system is to reduce the bid-ask spread and transaction cost through the competition among market makers, and also make the price positioning more accurate. On the premise of relatively stable prices, competition will also make the market more active and increase the trading volume. However, because there are dozens of market makers in each security, the information possessed by each market maker is relatively scattered, which reduces the accuracy of market forecasting, trading profits and the ability of market makers to take risks.
According to the different contents of rights and obligations, some exchanges divide market makers into designated market makers and general market makers. For example, among CBOE members, there are 349 general market makers 1 177 and designated market makers. Generally, market makers are individuals or companies, registered in the exchange, only self-employed, unable to act as agents, and have no priority. The designated market makers are all members of the Exchange. As a market maker of some securities, it can be self-operated or an agent, and it can also manage the quotation of designated securities. In stock, index and interest rate options, except SPX(S & amp； P500 index) and OEX (s&; P 100 index), the designated market makers have 30% priority.
trait
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.
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.
With price discovery function.
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 according to the quotation, which in turn affects the quotation of market makers, thus pushing the securities price 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.
Restrain 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
Instruction-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.
Comparison of two trading mechanisms
(1) Prices are formed in different ways. The opening price and subsequent transaction price in the order-driven mechanism are all formed through bidding. Take the China futures market as an example, all investors' orders are collected in the mainframe of the exchange, and the computer automatically makes the trading orders at the same price close. The opening price is the benchmark price at 9: 25, which meets the following three conditions. The first is the largest trading volume, followed by the buying declaration above the benchmark price and the selling declaration below the benchmark price. Third, the buyer or seller with the same benchmark price declares that at least one party has made a deal. The transaction price is generated in the trading system. In the quotation-driven mechanism, the opening price and subsequent transaction price of securities are quoted by market makers, and the transaction price is input from outside the trading system.
(2) The transaction cost is different. Under different trading mechanisms, investors' transaction costs are different. In the order-driven market, the price of securities is single, and the transaction cost of investors is only the handling fee paid to brokers. In the quotation-driven market, there are two kinds of market quotations at the same time: asking price and bidding price. The difference between them is the profit of the market maker and the reasonable reward required by the market maker to provide "instant service". But investors are forced to bear the extra transaction cost difference.
(3) The ability to handle large orders is different. Quote-driven system can effectively handle large trading orders. In the order-driven system, it often takes a long time to complete a transaction when a large order has to wait for the order of the counterparty.
Through the above comparison, we can find that the two mechanisms have their own advantages and disadvantages. From the historical origin, the complete market maker system is closely related to the quotation-driven mechanism, which has advantages in real-time trading, block trading ability and price stability, but it is not as good as the instruction-driven system in terms of operating cost and transparency. It is worth noting that these two mechanisms are not antagonistic and incompatible. In their respective development process, they are constantly absorbing each other's advantages and gradually merging. For example, new york Stock Exchange (NYSE) introduced the expert broker system as the bidding market, while Nasdaq introduced the electronic trading system at 1997, and the price decision has been driven from simple quotation to mixed quotation and instruction.
family status
At present, market makers are not recognized in China, especially in the spot industry, and their reputation is in a mess.