0

I know that there are individuals and firms who specialize in making markets for options, but are there designated market makers for stock options?

By "designated market maker", I mean a market maker who must provide quotes and liquidity similar to how an NYSE Designated Market Maker (specialist) or an official NASDAQ market maker must provide firm bid/ask quotes and liquidity for a large percentage of the trading day.

I have read: Are market makers obligated to keep the option markets liquid?. The answer there does not address my question.

0

To clarify:

All firms appointed as a Market Maker on a US Options Exchange have an obligation to provide continuous quotes in a given 'class' of options (all of the options for a particular underlying stock). An exchange participant generally needs to apply to an exchange to be a market maker in a given class of options.

The rules and the amount of continuous quoting varies from one exchange to another, but in general all Market Makers are required to (i.e. 'must') provide continuous quotes in each appointed class at least 60% of the time and the series, and no more than $5 wide except in certain situations.

Many exchanges also have different classifications of market makers and special ones such as "Designated Primary Market Maker" (CBOE), "Primary Market Maker" (NASDAQ ISE), "Lead Market Maker" (NYSE Arca Options). I am not sure if any of them use the same "Designated Market Maker" terminology that NYSE uses.

These special market makers generally have higher quoting obligations (e.g. coverage 99% of the time and the series) and sometimes have additional responsibilities, such as deciding when the market in a particular options series should be opened or re-opened after a halt. However not all exchanges require these special types of market maker to list a class of options for trading.

The rules and obligations for a particular type of exchange member can be found in the exchange's rule book.

History

Historically an exchange was owned by its market makers (or 'specialists'), where each market maker owned a 'seat' (an actual chair) where (actual) people would have to go if they wanted to trade a particular security. As they were the counter-party for every order transacted on the exchange in a given security, they could make quite a lot of money. This monopoly has been gradually chipped away over the years with most seat holders receiving a share of the stock of the exchanges that subsequently went public and the number of seats being increased resulting in more competitive markets. Now a 'seat' is simply a market maker permission a firm has to apply for which comes in different flavors depending on what advantages the market maker wants and is willing to pay for and obligations they are willing to accept. Most options exchanges now are fully electronic so the limit on the number of market makers is no longer constrained by available space on the trading floor.

Are there Designated Market Makers for Stock Options?

Yes. ("Designation" is not required).

0

Are there designated market makers for stock options?

A Designated Primary Market Maker (DPM) is a specialized market maker approved by an exchange to guarantee that they will take a position in a particular assigned security, option or option index.

Here is a link to the CBOE Designated Primary Market Maker Program (DPM). On that page is a link to the Symbol Directory which lists the DPM for many stocks.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.