Market Makers Are Back !

The Changing Market – Finding Market Makers

With the dramatic changes in the market over the last three years, a key piece of our work is working with clients to identify and target market makers. The following article is adapted from TradersMagazine.com for the purpose of examining why the changes have occurred and where the direction is moving for market makers.

November 2010 - Once upon a time, market makers ruled the roost. From their cavernous trading rooms in New York City, Long Island and New Jersey, they controlled trading in Nasdaq securities. From the floor of the New York Stock Exchange, they ran the auctions. Spreads were wide and profits were fat. Times were good.

Then, suddenly, everything began to fall apart. Decimalization sliced spreads over 80 percent to a penny in the most actively traded stocks. The Order Handling Rules forced market makers to display customer limit orders, bringing in competition. Regulation ATS led to the creation of ECNs, which brought in more competitors. Regulation NMS decimated the NYSE's market share of the NYSE, eliminating the specialists' information advantage, and their volume.

Full article and addition information.