They still have market makers?! What does it take?

S

Saltynuts

I remember reading about market makers on the stock exchanges when I was a kid. They got certain privileges, but had to stand ready to buy when people were selling, and sell when people were buying. As someone pointed out to me in another thread, this can be a huge DISADVANTAGE at times, which makes sense if you can't pick and choose when to sell.

Until recently I was under the impression with everything going electronic that formal market makers were pretty much a thing of the past. But then I heard a podcast talking about market makers getting paid, probably in the form of rebates, for "adding liquidity" to the market, that is placing limit orders that hit the order book. Then recently along those lines I saw a thread on here talking something about rebates I think for market makers.

So formal market makers still exist? What does it take to become one? What advantages (and compensation) are they given these days? I'm sure I would not have the juice/qualifications to become one, I'm just curious. Thanks so much!
 
Where ?
Options or Stock ?

You'll need real estate first - seats are pretty much gone and at the public exchanges you'll need a trading right. Some exchanges you can lease and be a trader - some you can lease and be a MM. Some you are going to have to buy.
People - you'll need a staff.
Technology - BOX, MIAX or CHX not a ton of money and BOX and CHX actually have a floorish area. Really just office space. They also have very little order flow.
Trading Capital - again depends which venue. The more you having the longer it will take to go bankrupt before getting run over by your larger competitors.
An obligation to trade - you have to make markets. You can't simply trade when you want and your subject to all the NBBO/NMS like rules. This is a big part of the technology expense.
Probably to be competitive in the US on any venue that has paper - all in $25 million on the low side.
A lot of the folks here are former MMs - it just got too expensive and as it became more automated you could more do with fewer people.
If you live in any of the cities where exchanges are located - well not really located but still have mailing address - you might want to look at the jobs at MM firms. NY, Chicago, Philadelphia or San Francisco.
15 - soon to be 16 option exchanges and about 75% of the volume is 3 MM firms. They probably spend $50 million or more a year on technology.
 
ajacobson said:
Where ?
Options or Stock ?

You'll need real estate first - seats are pretty much gone and at the public exchanges you'll need a trading right. Some exchanges you can lease and be a trader - some you can lease and be a MM. Some you are going to have to buy.
People - you'll need a staff.
Technology - BOX, MIAX or CHX not a ton of money and BOX and CHX actually have a floorish area. Really just office space. They also have very little order flow.
Trading Capital - again depends which venue. The more you having the longer it will take to go bankrupt before getting run over by your larger competitors.
An obligation to trade - you have to make markets. You can't simply trade when you want and your subject to all the NBBO/NMS like rules. This is a big part of the technology expense.
Probably to be competitive in the US on any venue that has paper - all in $25 million on the low side.
A lot of the folks here are former MMs - it just got too expensive and as it became more automated you could more do with fewer people.
If you live in any of the cities where exchanges are located - well not really located but still have mailing address - you might want to look at the jobs at MM firms. NY, Chicago, Philadelphia or San Francisco.
15 - soon to be 16 option exchanges and about 75% of the volume is 3 MM firms. They probably spend $50 million or more a year on technology.
More...


Wow, thanks a ton ajacobson. Obviously, I'm not going to become a MM any time soon. Just curious - you pay all this money, you are out all this capital, what benefit do they get? Thanks!
 
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