Ping An Securities Derivatives Department Zhang Shu
Market making refers to that in the securities market, a securities operating institution with certain strength and reputation acts as a licensed dealer, constantly reports the purchase and sale price of certain specific securities to public investors, accepts the purchase and sale requirements of public investors at this price, and conducts securities transactions with investors with its own funds and securities. These licensed dealers are market makers. Market makers maintain market liquidity by constantly buying and selling securities to meet the investment needs of public investors.
The mature covered warrant market usually adopts the market maker system to maintain the liquidity of warrants and maintain the reasonable price of warrants. For example, the Hong Kong covered warrant market clearly stipulates that issuers of listed covered warrants must appoint a liquidity provider to provide liquidity for their issued covered warrants, and each covered warrant can only have one liquidity provider. The market maker system usually has the following two functions for the entire covered warrant market:
First, the market maker system can activate securities trading and enhance market liquidity. Market makers constantly quote the buying and selling prices to the market, and refuse the buying and selling orders of public traders at their quoted prices, which greatly reduces the liquidity risk faced by investors. This year in China's warrant market, there was an example of investors' heavy losses due to insufficient circulation of warrants: an investor entrusted to sell 1 million Haier put warrants at the market price, but due to the lack of buying, most of the consignments were sold at a price of 1%, with losses close to 600000 yuan. However, this situation is impossible in the covered warrant market with the market maker system. This is because market makers will hang out multi-level and multi price purchase and sale orders to maintain the liquidity of warrants, thus greatly reducing the liquidity risk faced by investors.
Second, the market maker system can maintain a reasonable price of warrants and effectively curb excessive speculation in the market. Warrants are a kind of financial derivatives, whose value is mainly affected by the price and volatility of positive shares. Market makers provide appropriate purchase and sale quotations according to the price of regular shares and the fluctuation of derivatives in and out of the market, so as to guide the price of warrants to become reasonable. In addition, due to the trading behavior of market makers, the sharp rise and fall of warrant prices can also be avoided to some extent.
Under the guidance of market makers, the price of warrants can be better close to the trend of positive shares, giving better play to the leverage of warrants, and at the same time, warrant trading is more active. Most warrants in China are Non tradable shares In the process of reform, covered warrants issued by major shareholders are not really covered warrants. In order to enhance the liquidity of the warrant market, SSE has implemented the primary dealer system. As the primary dealers of warrants, some innovative securities companies have played an important role in improving the liquidity of warrants and guiding the prices of warrants. In the future, after the introduction of third-party covered warrants in China, the issuer will become a primary dealer, and its role will be greatly enhanced as a market maker in a mature market.
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