Option market makers
Role of market makers
Market makers play an important role in the options market. Market Makers receive fee incentives from ASX when they achieve minimum quoting benchmarks on a monthly basis*.
Market Makers assist in the price discovery process, so that other traders and investors are more easily able to price and value an option position. Liquidity is assisted when there are multiple Market Makers in a class, however , as Market Makers are not required to provide quotes in all series or at all times there can be no guarantee that all series will have prices displayed .
Market makers compete against one another while trading on their own account and at their own risk.
Each market maker must nominate themselves in one or more stocks in which they will be monitored against the minimum quoting benchmark. This involves quoting buy and sell prices for a certain number of series, and/or responding to requests from other market participants for prices.
Market Makers can choose to have the following quoting benchmarks:
- make a market on a continuous basis only; or
- make a market in response to Quote Requests only; or
- make a market both on a continuous basis and in response to quote requests.
The quoting benchmarks of market makers are as follows:
Market Makers who choose to make a market on a continuous basis are obligated to provide Orders continuously for certain percentages of time* in eighteen series per Underlying Security, encompassing three calls and three puts in any three of the next six expiry months. The criteria is based on the previous Trading Day's closing price of the Underlying Security and is selected from:
1. Those Series at-the-money
2. The next three in-the-money
3. The next three out-of-the-money
Each Order being for at least the Minimum Quantity and at or within the Maximum Spread requirements.
Market makers who choose to make a market in response to Quote Requests are monotored on their provision of orders on request for certain percentages of the time* for all Series up to nine months maturity in a Class for the Minimum Quantity and at the Maximum Spread.
The maximum elapsed time before responding to a Quote Request or replacing Continuous Orders is 30 seconds.
The minimum duration of an order is 30 seconds. An order can be amended on condition that the Minimum Quantity and the Maximum Spread is maintained.
* Where the market maker has elected to respond to quotes only, the quoting benchmark is to be active in the market for 60% of the relevant period. Where the market maker has elected to quote on a continuous basis only or has elected both quoting options, the quoting benchmark is to be active in the market for 50% of the relevant time period. The Relevant Period is between 10.20am and 4.00pm on each Trading Day calculated over a calendar month.
Each security over which exchange traded options are traded has a category designated by ASX. The category is allocated by reference to the liquidity of the security.
The category of the security determines:
- the maximum spread (the difference between the bid and offer prices) the designated market maker(s) may quote when making a market
- the minimum number of contracts for which the market maker must quote a price. The minimum volume requirement is ten contracts for Category 1 Classes and five contracts for Category 2 Classes.
Please note: There are no market maker obligations in FLEX Classes.
- Maximum spread and stock category (PDF 131KB)
- How market makers trade