Myth Busting and the New Market Maker: Liquidity, Speed, and Risk in an Age of Microseconds

This research note looks at today’s market makers and debunks four of the most pernicious market-making myths, including that marker makers: 1. Provide little liquidity, 2. Trade in front of investors (many incorrectly call this “front-running”), 3. Increase volatility and systemic risk, and 4. Need artificial structural advantages to survive. 

The note also examines the challenges with the premise that continuous displayed markets operate on the principle that investors use passive limit orders to display their intentions, and other investors use market and/or marketable limit orders act against them.