What Is the Role of a ‘Designated Market Maker’ (DMM) on a Derivatives Exchange?

A Designated Market Maker (DMM) is an entity with an obligation to provide liquidity and maintain a fair and orderly market for specific contracts. They commit to continuously quoting two-sided markets (bids and offers) within a certain spread and size.

In return, they often receive reduced trading fees or other incentives. Their presence is crucial for ensuring consistent liquidity, especially during periods of low volume.