What Is the Role of a Designated Market Maker (DMM) on a Traditional Options Exchange?
A designated market maker (DMM) on a traditional options exchange has specific obligations to maintain a fair and orderly market. Unlike regular market makers, DMMs are assigned specific options classes and are required to provide continuous two-sided quotes (both a bid and an ask) throughout the trading day.
They are also responsible for facilitating the opening and closing of the market for their assigned options. In return for these obligations, DMMs may receive certain benefits, such as reduced trading fees or priority in trade execution.
Their role is crucial for ensuring that there is always a baseline level of liquidity in the options they cover.
Glossar
Supplemental Liquidity Provider
Provider ⎊ A Supplemental Liquidity Provider (SLP) is a designated market participant that provides additional liquidity to an exchange beyond the standard obligations of primary market makers.
DMM
Data ⎊ DMM is an abbreviation that frequently denotes Digital Money Market or, in a technical context, a specific component within a trading architecture.
Designated Market Maker
Framework ⎊ Within cryptocurrency derivatives and options trading, a Designated Market Maker (DMM) operates as a liquidity provider, distinct from traditional exchanges where order flow is matched algorithmically.
Reduced Trading Fees
Incentive ⎊ Reduced trading fees represent a financial incentive offered by exchanges to attract high-volume traders and market makers.