Series 28: Market Makers/Specialists

Taken from our Series 28 Online Guide

Market Makers/Specialists

When calculating its net capital, any market maker or specialist that limits its business to transactions with other registered broker-dealers or members of an exchange and does not carry customer accounts generally need not deduct haircuts for its specialty securities. However, haircuts must be applied to determine whether the market maker has sufficient net capital to qualify for a withdrawal of equity capital or to borrow money through a temporary subordination agreement (discussed later in this chapter).

A market maker is a dealer that stands ready to buy and sell a particular security on a regular and continuous basis at a publicly quoted price. It accepts the risk of holding that security in its own account to facilitate the trading of that security in the market. With respect to a particular security, a market maker must:

  • Regularly publish competitive bid and offer quotations in a recognized interdealer quotation system; or furnish competitive bid and offer quotations on request
  • Be ready, willing, and able to effect transactions in reasonable quantities at quoted prices with other broker-dealers

A market maker does not carry customer accounts.

Securities dealers are called specialists when they are required by their SROs to maintain a market for a particular security. Specialists designated to facilitate trading on an exchange floor are called Designated Market Makers.

SEC Rule 15c3-1(c)(2)(vi)(N)

Example: Magic Brokerage is the Designated Market Maker for both XYZ Corporation and ABC Corporation on the NYSE. Because of this status, when it calculates its net capital, it does not have to take a haircut for its holdings in XYZ and ABC.

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