Market Maker

Market Maker is a person, brokerage, dealer, bank or institution that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price. Market makers play an important role for maintaining liquidity and guaranteeing price reference for the particular securities for which they are registered to trade.

List of companies that have a Market Maker

Market Maker at BOVESPA	Types of Market Making
Minimum Quantity and Maximum Spread	Trade Rules
Extraordinary Situations	Market Maker Deregistration
Market Maker Scope	Disclosure
Competitive Model

Market Maker at BOVESPA

The role of Market Maker at BOVESPA may be performed by:

Trading members
Non-member-broker dealers
Investment banks
All-purpose banks that manage investment portfolios

Market Makers take on the obligation of being in the market daily with firm buy and sell offers for a given number of assets. By registering them, Market Makers set publicly quoted price for the securities traded, including low-liquidity assets.

In order to define a fair price for an asset, Market Makers must have access to a range of strategic information on the corporation such as: previous background, frequent update on its economic-financial condition; value of its assets and perspectives.

Market Maker's Main Bases:

- Minimum Liquidity gives investor the possibility of selling the asset at any time.
- Reference Price enables investor to convert equities at a known price into cash.

Minimum Quantity and Maximum Spread

BOVESPA sets the minimum quantity of securities in each Market Maker's offer, according to the average volume of shares traded or, in case of corporate bonds, to the issue and public offering particularities. Therefore this quantity may be a round lot defined for that given asset or a multiple of such.

For instance, the round lot of a given security may have 1,000 shares. However, if BOVESPA identifies the stock volume per trade normally considered for that asset by the market stands at 2,000 shares, then the minimum quantity of each Market Maker's offer will be set in 2,000 stocks (two round lots).

Market Maker's bid and ask prices should respect a maximum spread between buy and sell offers. Spread on the stock market is based on the asset volatility verified over a certain period of time. As a general rule, most volatile securities have a larger spread, while the fixed income spread is appraised by the market interest rate.

Extraordinary Situations

In case the market is undoubtedly atypical, Market Maker will have either its parameters modified or will be released from obligations until it achieves a new level of normality. That can happen, for instance, in the face of extreme market fluctuation due to an economic or catastrophic fact or even a positive and sudden event that deeply impacts stock prices.

Market Maker Scope

Each Market Maker may be credentialed to represent one or more stocks/corporate bonds by different companies or by the same corporation. In order to do that, Market Maker needs to request BOVESPA a specific credential for each asset to be traded.

Credential Request Procedure Shares
Member Institutions	Non-Member Institutions
- Send out a formal credential request.	- Send out a formal credential request; - Sign a contract with BOVESPA indicating the broker-member through which they will provide the service; - Declaration of compliance with the general trade rules and specific Market Maker's regulation, besides mandatory submission requirements.

Credential Request Procedure Corporate Bonds
Member Institutions	Non-Member Institutions
BOVESPA Fix participants just need to formalize the credential request.

Competitive Model

The same share or corporate bond may be traded by more than one Market Maker. BOVESPA follows a competitive Market Making model by setting maximum limit of Market Makers per asset. The adoption of this scheme reflects some of the Brazilian stock market's main particularities:

An order-driven market
Rejection of trade exclusivity

Types of Market Making

There are two types of Market Maker:

Independent Market Maker – when the Market Maker has links neither with the issuing corporation nor with its holders/major shareholders, being committed to making the market without ties with the company, holding group or shareholders.

Contracted Market Maker – when the Market Maker signs an agreement with the issuing corporation, holding group, affiliates or any shareholder to make the market for a given security. In this case, remuneration is freely agreed between parts.

This possibility is highly important in the Brazilian scenario, where the number of assets available is generally low. Therefore the issuing corporation is allowed to take part in this process to improve the liquidity of its securities in the market.

There are several ways of making an asset available to Market Makers. One of them is the Securities Lending Bank (BTC), service through which investors may make securities available for loan and interested parties may borrow them based on the presentation of warrants. The CBLC (Brazilian Clearing and Depository Corporation) acts as counterpart in the process and guarantees the operation.

Trading Rules

Offers of securities that count on Market Maker's support compete on equal terms with other market offers, i.e., trades are closed following criteria of best price and registration chronological order. BOVESPA may grant cost advantages in these transactions to push the market.

Market Maker must act based on ethical and trustworthiness principles. Therefore, in order to foster a fair and organized market, Market Maker's performance is submitted to some restrictions that could eventually trigger a deregistration process in case of infraction.

Market Maker Deregistration

The Market Maker deregistration may happen in the following situations:

By BOVESPA's request or decision;
By Market Maker's own initiative after 90 days in charge of the position.

Disclosure

Reinforcing the importance of improving transparency and information aimed at market participants, BOVESPA daily posts on this website the list of credentialed Market Makers and the respective securities traded.

The site displays data such as minimum quantity per offer, maximum spread, stock and ISIN codes, etc. In the same way, it is possible to verify deregistered Market Makers and other deregistration processes underway.

At last, Market Maker importance can be measured by the results attained:

Liquid assets have a better price formation;
Investors have confidence that it is possible to buy or sell securities at any time;
This trustfulness stimulates trades and creates a virtuous circle of liquidity.