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Market-maker

A term with specific reference to dealing in stocks, shares, bonds and securities generally in the U. K. The market maker is the person (or organization) who takes on the duty to buy or sell directly the securities in which he deals and to ‘make’ a two-way price to any inquirer, a price at which he is then committed to deal.

Traditionally, the role of market-maker in the U.K. has been the preserve of the jobber, who keeps his own stocks of marketable securities and deals in them through the stockbroker, who acts as agent for the investing public. In addition to jobbers, there have been for some time licensed dealers in securities licensed by the Department of Trade and Industry – available for dealing in securities not listed on the Stock Exchange. They might be described as market-makers in the securities in which they deal, though they are not necessarily under the same obligation as a jobber to make a double price to a third party. The importance of licensed dealers has grown in recent years with the emergence of an active over the counter market in shares.

The recent changes in the structure of trading on the Stock Exchange do not affect the fundamental role of the market-j maker, but they bring him more into the limelight. The monopoly in market-making which was long enjoyed by jobbers was abolished in 1986. Since the abolition, all members of the Stock Exchange are able to act as market-makers if they so choose and many firms can become dual-capacity traders, combining the roles of jobber and broker. Furthermore, the way is open for various financial institutions such as clearing banks, merchant banks, international finance corporations, etc., to enter the market through subsidiaries which enjoy membership of the Stock Exchange or through departments set up to apply for and become members. Stocks and shares will become a very much more available commodity to the public at large and possibly another step may be taken towards the present government’s avowed intention of creating a genuine property-owning democracy (the latter with reference to Margaret Thatcher’s cabinet).

Reference: The Penguin Business Dictionary, 3rd edt.