Market-Maker Services

Market-Maker Services

Market-maker is an investment company, which realizes purchase and sale of any securities at its own expense. The market-maker has the following obligations:

  • Determining buy and sell prices, and announcing it through stock exchange;
  • Quotation spread (difference between buy and sell price) should not exceed a certain value;
  • Minimum volume: determining a minimum volume for every buy and sell price.

    PSG Capital is the market maker of SOCAR bonds and does daily trading of the bonds on Baku Stock Exchange.


What does the issuer gain?

The aim of the issuer is to raise the capital. For that reason issues needs to attract investors, and the easy way to achieve this is having a market maker.

An issuer may choose more than just one type of security such as shares or different types of bonds to raise capital. If there is a market maker of securities at the secondary market, the new emission of the securities of that particularly issuer will also be considered as liquid and it will become easy for it to attract the investors.

On the other hand spread is what the rating agencies  are looking for while evaluating the rating of the issuer. Having less spread positivly contiributes to the rating of the issuer. Market making activities can provide lesser spread for the securities. 

What does the investor gain?

Investors would always choose the more liquid one between the two assets with the same profitabilty. It is an advantage when the investor can transfer the asset into cash without any loss. The liquidity of the asset is measured by the differences between its bid and asked prices which is called "spread". Less spread means higher liquidity.

Some illiquid assets have high spread, for example, suppose that  the bid price is 20 USD and asked price is 40 USD. If you want to sell this illiquid asset you will make a loss of 50%, since you have paid 40 USD to purchase the asset but were able to make only 20 USD by selling it.  

Second issue investors take into account while purchasing an asset is the speed at which it can be transferred into cash. For example. let us suppose that you bought an asset and you are planning to sell it after a year. However due to some reasons, you decide to change your plans and sell it only after a month. If the asset is illiquid you will not be able to transfer the asset into cash in a short period of time. From this point of view, Real Estate Market is less liquid than  Securities market, since it is difficult to make the trade in a short period of time. Taking into account above mentioned facts, market making earns investors several advantages.

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