One firm, two guv’nors

Making a living as a market maker is no easy task these days, with low trading volumes and the increasing regulatory burden tending to wipe the smile from many a trader’s face.

Market making certainly has some perks, though, with exemptions from the European Short Selling Regulation, UK stamp duty and the Italian Financial Transaction Tax. Then again, where the MiFID II draft is concerned, market making strategies are a burden. If you fall under the definition of an algorithmic market making strategy under Art. 17(4) you must provide continuous two way quotes of comparable size at competitive prices. Similar requirements are outlined in even more detail in the ESMA guidelines on the market making exemption for the Short Selling Regulation.

Even though these requirements are something that every market maker has aspired to for many years, should they be mandated? No regulation requires a supermarket to continuously offer the best possible price on ice cream, so why is it necessary for financial markets? In all industries, firms try to implement the best processes, technology and intellectual property, because market forces weed out poor performers. With even higher stakes in financial markets, and little tolerance for poor performance, service delivery to the right standard at the right price is more important than ever to please clients and to keep regulators at bay.

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