As a Company Secretary, You are advised by the Managing Director to put up a note on Market Making.

Note to Managing Director on Market Making Market making is a process where the market makers offers a two way quote (both buy and sell) to increase the supply and demand of the scrip. This increase the liquidity in the stock. Market-making is aimed at infusing liquidity in securities that are not frequently traded on stock exchanges. A market-maker is responsible for enhancing the demand supply situation in securities such as stocks and futures & options (F&O). To understand this concept better, it would be helpful to have an idea about the existing screen based electronic trading system. In this system, orders placed by buyers and sellers are matched by a computer system (run by stock exchanges). This system is beneficial for actively-traded stocks, but not for lesser-traded ones. Investors usually ignore thinly-traded stocks despite good fundamentals due to fears that they might not be able to trade more frequently in them. The introduction of the market-making facility could be a possible means to infuse liquidity into such shares. In overseas markets, a market-maker is usually a broker or an institution. As a result, there is an incentive for the broker to recommend securities for which he creates a market.