For companies planning to go public in the United States, it’s essential to understand that the U.S. trading system is significantly different from Asian markets. One of the core mechanisms to grasp is the Market Maker System, especially for companies listed on NASDAQ or OTC markets (such as OTCQB, OTCQX, or Pink). The role and influence of market makers are critical in these environments.
What is a Market Maker?
A Market Maker is a licensed financial institution that continuously provides both bid (buy) and ask (sell) prices for a particular stock. Their main responsibility is to maintain market liquidity, ensuring that investors can buy and sell shares smoothly.
Unlike the order-matching mechanism used in China’s A-share market, market makers in the U.S. can trade on their own accounts and hold inventory. This is referred to as “positioning before matching.” They earn profit through the bid-ask spread and take on the risk of short-term price fluctuations.
Main Functions of Market Makers:
- Provide Continuous Quotes: Even in low-activity periods, market makers must keep quoting prices to ensure uninterrupted trading.
- Narrow the Spread: Competition among multiple market makers helps reduce transaction costs for investors.
- Stabilize Market Volatility: In extreme market conditions, the quoting behavior of market makers can help prevent drastic price swings.
Advantages of the Market Maker System:
- For companies: It enhances stock liquidity and increases market visibility.
- For investors: It provides stable bid and ask prices across trading hours, boosting confidence.
- For the market: It builds a trading structure with sustainability and depth.
The Market Maker System is more than a trading mechanism—it plays a vital role in the market capitalization management strategy of U.S.-listed companies. Understanding this system and choosing the right market makers is a crucial first step toward a successful U.S. listing.
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