The “Market Maker” system, also known as the house system.
A “market maker” is an independent stock trader who buys and sells a stock for investors.
In the market, the so-called “market maker” usually refers to the strength of the good reputation of commercial banks.
Other participants in the group usually ask these commercial banks what they can offer.
As market makers, commercial banks are usually willing to take on currency risk and trade, and some of the market is transferred to market makers.
Compared with the ECN platform, the trading is more user-friendly and the quotes are relatively flat, but they are less suitable for short-term investors.
The disadvantage is that these rules are set by foreign exchange brokers, it is easy for traders to trade with traders, and some unscrupulous market makers can easily manipulate the background.
However, the system has been accepted by foreign exchange markets around the world.
In China, in order to further meet the needs of market players and continuously deepen the construction and development of the foreign exchange market system, in January 2021, the State Administration of Foreign Exchange (hereinafter referred to as the “SAFE”) issued the “Guidelines for Market Makers in the Interbank Foreign Exchange Market” (Huifa [2021] No. 1) to revise the market maker system again.
The following mainly introduces the previous adjustment of the market maker system by the SAFE office and the main changes in this revision.
The Historical evolution of the Market Maker System in the Interbank Foreign Exchange market A market maker is a market trading system in which an institution with certain strength and reputation acts as a market maker, constantly providing bid and sell prices to market participants and trading with market participants based on the quoted prices.
From the perspective of the global forex market, market makers are the most important source of liquidity for the forex market.
The world’s ten largest banks account for 65% of global transactions, according to a recent report in a European journal.
In 2002, SAFE made its first attempt as a market maker in the interbank foreign exchange market (1.1928, -0.0003, -0.03%) and in transactions against the US dollar.
After the foreign exchange reform in 2005, in order to further deepen the construction of the foreign exchange market system, the State Administration of Foreign Exchange (SAFE) issued the Guidelines for Market Makers in the Interbank Foreign Exchange Market (Interim) (hereinafter referred to as the (Interim) Guidelines), officially introducing the USD (6.5107,0.0030,0.05%) market maker system into the foreign exchange market.
Formed and the inter-bank foreign exchange market bilateral inquiry trading pattern matching policy.
The (Interim) Guidelines for the first time specify the rights and obligations of market makers.
According to the characteristics at that time, the main quantitative assessment criteria for market maker access were set as the top 30 in interbank spot trading volume and the top 50 in cross-border receipts and payments on behalf of customers.
In 2010, the SAFE issued the Guidelines for Market Makers in the Interbank Foreign Exchange Market (hereinafter referred to as the Guidelines) on the basis of fully considering and absorbing the opinions of market participants.
According to the liquidity differences of different traded products in the foreign exchange market, the 2010 Guideline classifies market makers into comprehensive market makers and spot and distant swap market makers from the perspective of products.
At the same time, market makers are divided into formal market makers and attempted market makers, forming a three-level hierarchy of “market makers – attempted market makers – ordinary members”.
The quantitative assessment criteria for market makers’ access will remain basically unchanged, and an exit mechanism for market makers will initially be established.
Revised in 2013, the State Administration of Foreign Exchange “guidance”, focus on the perfection of the mechanism of retiring, further optimize marketmakers and try to do the city agency evaluation standard and upgrade mechanism, market maker access exit of quantitative evaluation criteria from past deals on the objective score evaluation method based on the inter-bank foreign exchange market, the scale index is relatively weak, emphasizes the market quality,
The degradation mechanism optimizes the first three winners, the last three eliminated, and the dynamic entry and exit mechanism of a biennial cycle.
The basic framework of the market maker system remains unchanged.
Experience shows that over the past 15 years, market makers have played an important role in providing market liquidity, discovering prices and stabilising markets.
The dollar rose, gold settled at a near six-week high and oil was held back at the 80 mark.
Please pay attention to the specific operation, the market is changing rapidly, investment needs to be cautious, the operation strategy is for reference only.
