Market Making Securities and Securities Market Makers  
01/08/2017 
 

What is a Market Making Security? 
Role of Securities Market Makers 
Requirements to be Securities Market Makers
Application for Securities Market Maker permits and facilities
Market Making by Corporate Clients
Obligations for Securities Market Makers
Incentives for Securities Market Makers 

Securities Market Makers for Pilot Programme

 

What is a Market Making Security?

A Market Making Security (MMS) refers to an automatch stock designated by the Exchange to be traded with securities market making facilities.  A MMS can also be admitted as a Designated Security for short selling and for tick rule exemption. 

Currently, MMS consists of Exchange Traded Funds (ETFs), Leveraged and Inverse Products (L&I Products) and securities traded under the Pilot Programme and their trading arrangements are as follows:

 

Market Making Security (MMS) 

ETFs and L&I Products

Pilot Programme

Eligible for securities market making

Admitted as Designated Security for short selling

Exempted from the tick rule

1

Quotation rules Same as for other stocks unless otherwise mentioned2

1 The seven Nasdaq stocks traded under the Pilot Programme are not exempted from tick rule
Rule 503 in the Rules of the Exchange is not applicable to all the securities traded under the Pilot Programme since their Previous Closing Prices are not being displayed

 

Role of Securities Market Maker

The main role of a Securities Market Maker (SMM) is to offer bid and ask prices and provide enhanced liquidity for ETF and L&I Product units to allow investors to transact at almost any time during the trading hours.  Their services are helpful when trading of a less liquid ETF or L&I Product becomes limited due to the absence of active buyers and sellers.  Actively traded ETFs and L&I Products can also benefit from the additional liquidity provided by SMMs when there are many orders at the bid and ask queues.  

 

Requirements to be Securities Market Maker

Stock Exchange Participants can apply for SMM permits from the Exchange.  Before being granted an SMM permit, the Exchange Participant must demonstrate that it is suitably qualified in terms of financial standing, trading record, personnel, computer equipment, internal security procedures and risk management.  The SMM permit is renewable every year subject to satisfactory performance.

 

Application for Securities Market Maker permits and facilities

The form required for the application of SMM permits (Form 10) can be downloaded here SMMs can also apply for Market Making Central Gateway session or Market Making Open Gateway provided by the Stock Exchange upon payment of a fee.

 

Market Making by Corporate Clients

An EP may apply to make market on its own and act as an SMM or for its corporate client as a Designated Specialist.  The client must fulfill certain requirements before it can become a Designated Specialist.  The relevant regulations are available in the Fourteenth Schedule of the Rules of the Exchange (click here for details).

 

Obligations for Securities Market Makers

Prior to the listing of an ETF and a L&I Product, a set of obligations will be set for each ETF and L&I Product and abide by all SMMs making market for the same ETF and L&I Product.  Market making obligations for each ETF and L&I Product can be found on their respective webpages.

 

Incentives for Securities Market Makers

As shown in the table below, SMMs enjoy some benefits such as exemptions from transaction levy and trading fee when they take on the additional tasks required of market makers.

Transaction

 Transaction levy

Trading fee

Non-
SMMs  

SMMs

Non- 
SMMs

SMMs

Buy/sell unit(s) of ETFs and L&I Products

0.0027%

-

0.005%

-

 

Securities Market Makers for Pilot Programme (Trading Only Securities)
  

Stock Code

Name of Trading Only Securities

Securities Market Maker

04332

AMGEN-T

Currently no Securities Market Maker

04333

CISCO-T

Currently no Securities Market Maker

04335

INTEL-T

Currently no Securities Market Maker

04336

APPL MATERIAL-T

Currently no Securities Market Maker

04337

STARBUCKS-T

Currently no Securities Market Maker

04338

MICROSOFT-T

Currently no Securities Market Maker

04362

ISHARES KOR-TR

Currently no Securities Market Maker

04363

ISHARES TWN-TR

Currently no Securities Market Maker