Market makers

Such a market for trading chemical contracts would effectively help the industry separate the risk of asset ownership from both production and financial risk. Imagine, for example, if a pure commodity player could conclude forward contracts to lock in the price on most of its output volume and input raw materials. It could outsource the sales and logistics process to efficient transactional market makers and low cost logistics speciahsts, leaving it to focus purely on being distinctive in low cost operations. 

Functional specialists (e.g., Symyx, Vopak) Market makers Distribution and sales Innovators (e.g., Chem- (e.g., Venlro) Connect) ... 

The Internet-based economy is multilayered. It can be divided into several layers that help us in grasping the nature of the new economy. Barua et al. (1999) have identified four layers of the Internet economy in their measurement of the Internet economy indicators. The first two, Internet infrastructure and Internet applications layers, together represent the IP or Internet communications network infrastructure. These layers provide the basic technological foundation for Internet, intranet, and extranet applications. The intermediary/market maker layer fadlitates the meeting and interaction of buyers and sellers over the Internet. Through this layer, investments in the infrastructure and applications layers are transformed into business transactions. The Internet commerce layer involves the sales of products and services to consumers or businesses. According to their measurements, the Internet economy generated an estimated 301 billion in U.S. revenues and created 1.2 million jobs in 1998. Estimates of revenues and jobs contributions by each layer are presented in Table 1. 

While this approach would work in practice, this would only be for a single security portfolio it would be unwieldy and inaccurate for valuing a number of securities. As banks and market makers must value many hundreds of cash and off-balance sheet instruments, another approach is required. This other approach was considered in this chapter and involves describing the dynamics of the bond price process in the form of a term structure model. Under this situation, a multifactor model may be more suitable, particularly when used to value options. 

Remember of course that the forward rate is derived from the current spot rate term stracture, and therefore although it is an expectation based on all currently known information, it is not a prediction of the term structure in the future. Nevertheless the fra-ward rate is important because it enables market makers to price and hedge financial instruments, most especially contracts with a forward starting date. 

Market professionals include the banks and specialist financial intermediaries mentioned above, firms that one would not automatically classify as investors, although they will also have an investment objective. Their time horizon will range from one day to the very long term. They include the proprietary trading desks of investment banks, as well as bond market makers in securities houses and banks who are providing a service to their customers. Proprietary traders will actively position themselves in the market in order to gain trading profit, for example, in response to their view on where they think interest rate levels are headed. These participants will trade direct with other market professionals and investors, or via brokers. Market makers or traders (also called dealers in the United States) are wholesalers in the bond markets they make two-way prices in selected bonds. Firms will not necessarily be active market makers in all types of bonds smaller firms often specialise in certain sectors. 

There is some trading in other Euro countries futures (France, Spain, etc.) but the amounts traded in them are very small in relative terms to the Eurex, and they remain due to some market makers commitment to continue giving liquidity to these products. 

Like Pfandbriefe, Obligations Foncieres bondholders retain preferential rights with regard to the event of bankruptcy over any other claims. The similarities do not stop there. Issuers and market makers have agreed that the minimum size of issuance should be 500 million, that the issue is supported by a market making commitment from at least three banks, quoting continuous prices with bid/offer spreads of between 5 and 20... 

Although market makers provide a similar degree of liquidity for this product as for French and German Jumbos, the overall turnover in the cedulas has been somewhat limited. This is something that is likely to change in the near future. As of January 2003, the amount of Jumbo Cedulas Hipotecarias, with maturities exceeding two years, equals 16 with an outstanding volume of 30.05 billion. 

Pension reforms in Europe will be the main factor driving the development of the Eurozone market for inflation derivatives and for real assets in general beyond their current niche market state. As the natural demand for real assets grows in parallel with the development of a private pensions market, corporate payers will emerge, with associated issuance and swaps, that is, analogous to the current state in the UK market. However, the presence of a larger number of players (payers, receivers, and market makers) means that the market will likely be more liquid and more efficient than the current UK IL swap market. 

For instance the 2Vi% Annuities gilt was issued in 1853. You won t find too many market makers who are keen to trade in it though ... 

A separate category of LSE broker is the broker/dealer. These are firms that act both for their own account or as agents for another party. Broker/dealers therefore trade with both market makers and client firms and can deal with clients either as principal or agent. Broker/dealers may also act as wholesale broker/dealers to GEMMs. 

Periodic dual auctions were also introduced. Dual auctions allow the issue of two stocks of different maturity in the same month, which moderates the supply of any one maturity and also appeals to a wider range of investors. Market makers (GEMMs) were allowed to telephone bids in up to five minutes before the close of bidding for the auction. 

DMO seeks to ensure that no one market maker receives more than 25% of the issue being auctioned for its own book. 

GEMMs and market makers of sterling-denominated bonds. 

Market makers in sterling interest rate swaps. 

Market makers generally are able to finance their long bond and equity positions at a lower interest cost if they repo out the assets equally they are able to cover short positions. 

Repo itself is an over-the-counter market conducted over the telephone, with rates displayed on screens. These screens are supplied by both brokers and market makers themselves. Increasingly, electronic dealing systems are being used, with live dealing rates displayed on screen and trades being conducted at the click of a mouse button. 

The seller in a classic repo is selling or offering stock, and therefore receiving cash, whereas the buyer is buying or bidding for stock, and consequently paying cash. So if the one-week repo interest rate is quoted by a market-making bank as 51 5 4, this means that the market maker will bid for stock, that is, lend the cash, at 5.50% and offers stock or pays interest on borrowed cash at 5.25%. In some markets the quote is reversed. 

Short-covering of positions by market makers or speculative sellers, when they are stock-driven trades. 

The repo market has allowed the hedge fund to borrow in sterling at a rate below the cost of unsecured borrowing in the money market (4.95%). The repo market maker is overcollateralised by the difference between the value of the bonds (in ) and the loan proceeds (2%). A rise in USD yields or a fall in the USD exchange rate value will adversely affect the value of the bonds, cansing the market maker to be undercollateralised. 

There are a number of unusual features in the French repo market, in addition to the definition of repo in domestic law. These include a registered market-making system, as one observes in the cash government market, and a significant volume of floating-rate repo. A typical market maker s repo screen is shown at Exhibit 10.21. 

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