The SME IPO Handbook · Chapter 5 of 12
Market Makers: Why They Matter
What a market maker does
A market maker continuously quotes buy and sell prices so that the stock can trade even when natural buyers or sellers are scarce. SME issues must appoint a market maker for a minimum period after listing, and a portion of the issue is reserved for them.
A limited role
The market maker provides liquidity, not price support. Obligations are about quoting, with spreads and minimum quantities set by the exchange, and they can step back once their obligation period ends or when stated conditions are met.
What to check
The prospectus names the market maker and the portion reserved for them. After the obligation period ends, watch whether trading volume holds up. Falling volumes with wide spreads make exit harder.
Market maker and listing price
Because the market maker holds a reserved block, its activity can influence early price action. That is another reason why first-day moves in SME stocks are not a reliable guide to value.
Key takeaways
- Market makers quote prices to keep the stock tradable.
- They give liquidity, not a guaranteed price.
- Watch the stock after the market-making period ends.
- Early price action is influenced by market-making.