Designated Market Maker - DMM

Loading the player...

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.

RELATED TERMS
  1. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
  2. Indicative Quote

    In forex trading, a currency quote that is provided by a market ...
  3. Third Market Maker

    A third-party securities dealer that is ready and willing to ...
  4. Floor Broker (FB)

    An independent member of an exchange who is authorized to execute ...
  5. Specialist

    A member of an exchange who acts as the market maker to facilitate ...
  6. Trade Or Fade Rule

    An options exchange rule that requires the market maker to either ...
Related Articles
  1. Investing

    Designated Market Maker

    A designated market maker maintains fair and orderly markets for an assigned set of listed firms and improves market liquidity.
  2. Trading

    Know Your Counterparty When Day Trading

    This can provide insight into how the market is likely to act based on your presence, orders and transactions.
  3. Investing

    The Auction Method: How NYSE Stock Prices are Set

    The New York Stock Exchange (NYSE), sometimes referred to as “the big board,” is the oldest and largest stock exchange in the United States. NYSE is the place investors think of when ...
  4. Investing

    How Brokers Can Avoid A Market-Maker's Tricks

    Ensure that you and your clients are getting the best deal by avoiding these three pitfalls.
  5. Trading

    Market Makers Vs. Electronic Communications Networks

    Learn the pros and cons of trading forex through these two types of brokers.
  6. Investing

    Role Of A Market Maker

    A market maker is a firm or an individual that stands ready to buy and sell a particular security throughout the trading session to maintain liquidity and a fair and orderly market in that security. ...
  7. Markets

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  8. Trading

    How To Pay Your Forex Broker

    Three types of commissions are used in this market. Learn how to get the best deal.
  9. Trading

    Introduction To Level II Quotes

    Find out what's happening in a given stock with this service showing Nasdaq market makers' best bid and ask prices.
  10. Investing

    The NYSE And Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
RELATED FAQS
  1. What's the difference between a Nasdaq market maker and a NYSE specialist?

    What's the main difference between a specialist and a market maker? Not much. Both the New York Stock Exchange (NYSE) specialist ... Read Answer >>
  2. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
  3. Does a broker always have to buy a stock if I want to sell it?

    There are certain times when a broker must purchase the stock that you are selling. For example, if the broker is a market ... Read Answer >>
  4. A _______ is a person on the trading floor of certain exchanges who holds an inventory ...

    The correct answer is d. A good example of an exchange using the specialist system is the NYSE. Each stock listed on the ... Read Answer >>
  5. What is the difference between a quote driven market and an order driven one?

    The difference between these two market systems lies in what is displayed in the market in terms of orders and bid and ask ... Read Answer >>
  6. How do I buy an over-the-counter stock?

    The process of purchasing over-the-counter (OTC) stocks is different than purchasing stock from companies on the NYSE and ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center