Designated Market Maker - DMM

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DEFINITION of 'Designated Market Maker - DMM'

A market maker that is obligated to maintain fair and orderly markets for an assigned set of listed firms. Formerly known as specialists, the designated market maker is a point of contact for the listed company, and provides the company with information, such as the mood of traders and who has been trading the stock. Quotes offered by the DMM are on par with what floor brokers offer, and the DMM is obligated to quote at the national best bid or offer for a percentage of the time.

BREAKING DOWN 'Designated Market Maker - DMM'

The designated market maker position is relatively new to the New York Stock Exchange. This type of position was added in order to increase competitiveness and market quality as electronic trading becomes more and more widespread. Announced in 2008, the DMM is considered a value-added service offering higher touch than what an electronic-only platform can provide.

Brokers, who represent the interests of financial institutions, pension funds, and other organizations investing in the market, work with designated market makers to make a trade. On the trading floor of the NYSE, DMMs are positioned in the center of the room while floor brokers are located along the room’s periphery.

One of the bigger changes from the specialist role, which the DMM replaces, involves the trade information that a DMM has access to. Designated market makers do not have access to information on who has bought or sold a security until after the trade is made, meaning that the DMM does not have inside information and faces the same risks as other market participants. This levels the playing field between the DMM and floor brokers.