Alireza Tavakoli Kashi, Vice President for Development of Institutions and a student of the Third DBA course in the Islamic Capital Market, explained the market marketing and its related issues.

Market Making:

It is the set of operations by which the transaction costs of a security - or any other commodity - are reduced by the difference between the best bid-ask spread and suggested buying and selling rates

Market marking is an activity that is done with the aim of regulating supply and demand and limiting the range of fluctuations and increasing the liquidity of the security."

Market Maker:

A person who conducts market marking with the permission of the market supervisor.

A trader is a broker /a trader who trades by obtaining the necessary license with the commitment to increase liquidity, regulate the supply and demand of certain securities, and limit the range of price fluctuations.

Why do we need market markers?

Reduce transaction costs and increase the attractiveness of securities.

Prevention of adverse effects due to unwanted market fluctuations.

Unwanted fluctuation means users' mistake in order registration, including price and volume shifts, inserting additional figures in the price and missing price figures at the time of order registration.

Market making goals

. Increasing the liquidity of securities through continuous registration of simultaneous buying and selling orders.

Reducing transaction costs by decreasing the range of quotations.

Market making effects:

. Reducing price fluctuations and preventing unwanted price fluctuations

Reducing transaction costs

Misconceptions about Market makers:

The presence of the market maker should stop the high fluctuation of the stock price (securities) in one day! Incorrect.

In case of severe fluctuations during a day (for example, from 7% - to 12% +), the market maker makes a profit too much! Incorrect.

What is market making and what is not?

Market making does not mean one-sided buying

Market making does not mean one-sided sales.

It is not the job of the market maker to advocate for any price on any stock.

Market making is merely to increase the liquidity of a security and guarantee its liquidity at all times at the lowest transaction cost.

Benefits of market making for the market:

In addition to reducing transaction costs, the presence of a market maker increases the attractiveness of an asset and paves the way for increasing its price.

The interests of the market maker

Making a profit from the difference between buying and selling prices

Getting fee discounts and tax exemptions by the supervising authority.

Receiving market marketing fees.

Providing required assets and resources:

A market maker must simultaneously register his buying and sales orders in the trading system. Therefore, you must have enough cash to register the purchase order and have enough stocks or securities to place a sales order

Securities are usually provided in one of the following ways:

1. Major shareholder participation

2. Temporary loan from the major shareholder - Proxy sale of the major shareholder shares to the market maker

3. Short sale

4. Purchase of securities by the market maker from the market making systems

There are two types of market making systems:

1. Quote-based market making

2. Order-based market making

The main difference between the two methods is in disclosure.

In order-based market making, in addition to the price quote, the order volume is also disclosed. Therefore, this issue is in compliance with the trading conditions of the trading system of the same exchange.

As the world's major stock exchanges have gradually shifted to order-based market making, we will refrain from further explanation.