The Malta Stock Exchange has outlined the rules that will govern the operation of market-making when this is launched in October.

These were presented during a meeting with its members as well as listed companies, and representatives of the Treasury, the Central Bank of Malta and the MFSA.

CEO Eileen Muscat explained that the new role of market-making would help to increase the level of liquidity on the market.

“This lack of liquidity exists because of our small size and the fact that the investor base is heavily retail in nature, with the Maltese culture being one of a buy to hold, and not to trade,” she explained.

Market-makers would need to be members of the Exchange, and can choose which instruments they wish to operate in. They would be obliged to maintain a continuous bid-and-offer price and would be subject to a minimum order quantity while operating within a defined spread.

Cliff Pace, product and business development manager at the Exchange, outlined the design of the operating structure, on what criteria the spreads and minimum volumes were built and how the exchange would keep this market-making structure updated with developments in the marketplace.

The meeting was also addressed by the recently appointed chairman, Paul Spiteri, who also gave a short presentation about his vision for the Exchange.

What is a market-maker?

A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security.

Each market-maker competes for customer order flow by displaying buy-and-sell quotations for a guaranteed number of shares.

Once an order is received, the market-maker immediately sells from its own inventory or seeks an offsetting order. The Nasdaq is the prime example of an operation of market-makers. There are more than 500 member firms that act as Nasdaq market-makers, keeping the financial markets running efficiently because they are willing to quote both bid and offer prices for an asset.

Source: Investopedia