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In this article talking about market makers within the options market:

Options on key indexes, exchange-traded funds and high-volume stocks dominate trading. Meanwhile, there is less activity in the rest of the listed U.S. options world.

The stresses prompted at least six prominent options market makers to exit from the business since 2012. Market makers are firms willing to both buy and sell using automated programs.

...

A lightning-rod issue in options trading has been auctions designed to provide the best prices for investors by redirecting some retail orders into a separate auction process. They have curtailed market makers’ ability to interact with retail orders, giving them less incentive to provide quotes, traders say.

https://www.wsj.com/articles/traders-are-fleeing-the-options-market-1494158400

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Something like 85%, of option volume now occurs in 10 securities, 7 of which are ETFs. As a result, there is less liquidity in all other options. Lower liquidity has caused wider B/A spreads which in turn has discouraged trading in those options because the percent gain needed to break even has become larger and it is all self fulfilling. This has also been exacerbated by the popularity of weekly options, strikes prices as narrow as 50 cents apart and liquid options that sometimes trade in penny increments. It has become difficult for market makers to profit since the lucrative retail trade has gone elsewhere.

I'm not sure exactly what Peterffy's quote refers to. My guess is that he is referring to some brokerage firms matching option orders within their own pool of customers, thereby keeping the wider spreads for themselves rather than sending them out to the market makers. It may also have something to do with ECN taker-maker rebates and Payment For Order Flow which entices brokers to route to these specific markets. Hence the death of the traditional option market maker.

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