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Simple English definitions for legal terms
market-maker
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A quick definition of market-maker:
A market-maker is someone who helps create a place for people to buy and sell things like stocks. They do this by telling others what the highest price someone is willing to pay for a stock (the bid) and the lowest price someone is willing to sell it for (the ask). Market-makers can be specialists, dealers, or people who regularly enter quotes for a particular security and are willing to buy and sell it for their own account.
A more thorough explanation:
A market-maker is a person or company that helps establish a market for securities by reporting bid-and-asked quotations. This means that they provide information about the prices at which they are willing to buy and sell securities.
Market-makers are typically specialists who are permitted to act as dealers. They may act as block positioners, which means they buy and sell large blocks of securities, or they may routinely enter quotations in an interdealer communication system. They are willing to buy and sell securities for their own account.
- When you look up a stock quote on a financial website, you will see the bid and ask prices. These prices are provided by market-makers.
- A market-maker may buy a large block of shares from an investor who wants to sell quickly. The market-maker can then sell those shares to other investors over time.
- During an initial public offering (IPO), a market-maker may help establish the market for the new stock by providing bid and ask prices.
These examples illustrate how market-makers help establish a market for securities by providing information about prices and buying and selling securities for their own account.