Description

Market makers have existed for as long as stocks have been continuously traded. The business model was simple – buy low then quickly sell high or vice versa. If a market maker stopped earning sufficient profits in one stock he would switch to another. If things became too volatile, the market maker walked away altogether and waited for things to return to normal. In London, market makers (known as jobbers) can be traced back to the late 1700s. Over time, exchanges began to assign affirmative obligations to market makers – most commonly requiring that they provide quotes of a certain magnitude and for a certain amount of time each day. Some exchanges, such as London and NASDAQ, developed as competing market maker (dealer) systems. Others, like the New York Stock Exchange, developed as a monopolist market maker (specialist) system.