Leading ETF market makers include Bank of America, UBS, Goldman Sachs and Knight Capital.
Convince people to trade at the prices that the market makers want them to trade at.
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Why should important financial market makers and retail investors pay for excessive spending programs?
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Market makers can, for instance, settle trades using the underlying shares rather than cash.
ETFs have arrangements with market makers to provide liquidity and ETFs can be traded throughout the trading day.
Rather, the market makers acted as if the 1970s were making a comeback.
Market makers, just like any wholesaler or retailer, incur inventory holding costs.
No different from what market makers do every hour of every trading day.
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In the early seventies a coterie of market makers operated with minimal capital, many graduated from OTC trading desks.
Kevin Jones, head of Net Market Makers, a market-research firm, offers two extremes.
The top ten market makers quoted odd sixteenths only 6.9% of the time.
In situations like the flash crash, market makers seem to be the key to finding the other side of trades.
So who are these high-frequency traders that some call nefarious and others consider them to be the next market makers?
Other new market makers there are about 2, 000 of them in all probably account for another 12% of Nasdaq volume.
As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa.
"We are speaking to institutional traders, hedge funds and market makers in designing these contracts, " says Trade Exchange spokesman Mike Knesevitch.
Some market makers, called authorized participants (APs), are allowed to interchange ETF shares for their underlying securities, corporate bonds in this case.
An unfolding scandal was targeting the NYSE's market makers, known as specialists, for misusing their status to wrongfully profit off investor orders.
Designated market makers, like the old specialists, have to trade their assigned stocks continuously to smooth out market volatility among other requirements.
Emerging-market makers, in places such as Russia, are keen to muscle in.
Niederauer is pushing the Securities and Exchange Commission to approve rule changes making the remaining specialists designated market makers, helping them improve profits.
Market makers are not able to buy or sell the underlying corporate bonds because volume mismatches occur between ETF trading and underlying security trading.
Mr Whitcomb runs Automated Trading Desk, a firm that competes with market makers, and freely admits the need for independent confirmation of his findings.
One of the biggest issues it may face is whether to impose obligations on market makers to participate in trading even in highly volatile markets.
Before the advent of computers and charting software, pit traders and market makers used this method to figure out where the markets might be heading.
And the liquidity that you see on the screens, that you're viewers see every day in the options market, is predominately provided by professional market makers.
Market makers compete en masse where there is already deep liquidity and no opportunity for price improvement because of the tick size, the Pragma report concluded.
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Bonds are more expensive to trade than stocks, so most bond ETFs typically trade slightly above NAV to compensate ETF market makers for these added trading costs.
Advisors typically collect higher fees for trading strategies, brokers collect more commissions, exchanges earn a fee from each transaction, and market makers gorge themselves on the bid-ask spread.
The BATS BZX Exchange, where iShares has listed several newer funds, has a system that rewards market makers for quoting ETF prices even if the funds aren't trading.
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