The makings of a market maker

The makings of a market maker

We have always subscribed to the notion that ‘you are only as good as your last trade’ and not from a proprietary point of view, but from the experience of the customer.

Good client outcomes lead to further client engagement and having a focus on service can help to build long-term trusted relationships.

To be successful in a competitive trading landscape, businesses must effectively evolve their proposition to the changing needs of their customers.

Building a close relationship with clients means they will rely on firms to adapt their offering and ultimately fulfil the demands of their own clients. 

Initially we focused on the retail broker, the smaller order: the clients big banks were not interested in dealing with.

However, with time and technological advances this client base grew to include wealth managers, institutions, registrars, hedge funds and more recently the large investment platforms.

A good market maker must also evolve to changing investor needs. In 1994 we offered fixed income trading in retail size, European and North American trading followed in 1999, investment trust trading, research and corporate advisory in 2002, exchange-traded fund trading in 2006 and then Winterflood Business Services (our fully outsourced dealing and custody model) in 2010 – all in response to evolving demand to widen the investment universe. 

Key points

  • Good client outcomes lead to further client engagement
  • Market makers face testing conditions
  • institutions are keen to tap into the retail order flow

A market maker

Providing a consistently reliable service is the cornerstone of building long-term trust in the institutional and retail markets. Market makers should demonstrate meaningful liquidity and the willingness to make a price ina range of sizes for UK, European and North American securities, even during the most volatile market conditions.

From the Asian crisis (1997 to 1998) and the Dotcom bubble (1999 to 2000) to the most recent financial crisis, market makers have faced testing conditions. But it is in these climates of elevated volatility and extreme market conditions market makers must be able to show a commitment to making two-way prices and reducing the market impact of large orders.

This continuity of high-quality execution is how to build a reputation as a trusted market maker. 

Following the financial crisis, we have had relatively benign conditions, but market makers must be ready to assist clients in navigating the next inevitable period of market flux.

Our experience has taught us that seeing the bigger picture and always offering a reliable service throughout even the choppiest of markets – market crashes included – assists our clients in their own service offering. Ultimately, orderly markets breed confidence in markets and this is a virtuous circle. 

Meet the liquidity challenge 

Over the past 30 years, while the tides of liquidity have ebbed and flowed, and market structure has become ever more fragmented, ensuring constant delivery of pricing and execution is important.

Even during leaner periods, our unique mix of liquidity from corporate programmes, retail and institutional order flow, in addition to our own risk capital, has helped firms with both retail and institutional-sized orders achieve best execution. Obtaining sufficient levels of liquidity is paramount for institutional clients.