What is 'market-making'? Discuss in brief the obligation of a market-maker.

Meaning of Market Making: Market Making is a process whereby two way quotes are offered for the purpose of facilitating trading in respect of a certain scrip. The chief advantage of market making is that it affords much-needed liquidity to the securities. It also increases the supply of scrips in the market and also triggers demand for the scrips in the market. The main obligation of the Market Maker is to provide liquidity in the market for securities that will get listed in SME Exchange, as they may have lower levels of liquidity. Obligations of Market Maker: The Market Maker shall be required to provide a 2-way quote for 75% of the time in a day. The same shall be monitored by the stock exchange. Further, the Market Maker shall inform the exchange in advance for each and every black out period when the quotes are not being offered by the Market Maker. The minimum depth of the quote shall be ₹1,00,000/-. However, the investors with holdings of value less than ₹1,00,000 shall be allowed to offer their holding to the Market Maker in that scrip provided that he sells his entire holding in that scrip in one lot along with a declaration to the effect to the selling broker. Execution of the order at the quoted price and quantity must be guaranteed by the Market Maker, for the quotes given by him. There would not be more than five Market Makers for a scrip. These would be selected on the basis of objective criteria to be evolved by the Exchange which would include capital adequacy, networth, infrastructure, minimum volume of business etc. The Market Maker may compete with other Market Makers for better quotes to the investors; Once registered as a Market Maker, he has to start providing quotes from the day of the listing / the day when designated as the Market Maker for the respective scrip and shall be subject to the guidelines laid down for market making by the exchange; Once registered as a Market Maker, he has to act in that capacity for a period as mutually decided between the Merchant Banker and the market maker. Further, the Market Maker shall be allowed to deregister by giving one month notice to the exchange, subject to (g) above.