I am trying to understand some market-maker (MM) data that I have. As a follow-up to a question I read about MM and to this piece of information on Investopedia,
Market makers must maintain continuous two-sided quotes (bid and ask) within a predefined spread.
I am wondering the following. Is a MM obliged to quote a bid and an ask price at the same time?
E.g., take a look at the following raw piece of MM data:
MMExchange, MMID, MMBid.Price, MMBid.Size, MMAsk.Price, MMAsk.Size Q, NSDQ, 2.25 6, 2.29, 19
Interpreting this data, I get the following:
MM Exchange : Q MID : NSDQ MM Bid Price: 2.25 MM Bid Size : 6 MM Ask Price: 2.29 MM Ask Size : 19
- Price is in dollars: so the displayed spread is
2.29 - 2.25 = $ 0.04
- Size means the number of shares that the MM is quoting for the given bid and ask (I believe it's quoted in thousands)
- I got the data from a reliable source (so I'm sure it's correct)
- I'm referring to Registered Market Makers here (so not private investors)
Now I have the following questions:
- Did the MM quote these bid and ask prices at the same time?
- Why is the MM (price) spread larger than the current bid and ask spread? (I also have that data: the price quote that exchanges send out)
- Does this mean that I can calculate the profit the MM is trying to make on this quote?
market makerwhen they send a limit order to an exchange. So there are millions of transient market makers for every symbol on every exchange every day, and there is certainly no rule that states they have to enter both sides of the book. I think you may be referring to Registered Market Makers, who do have to follow certain exchange and governmental rules about providing liquidity.