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How Trade-Reporting Rule Helps Market Makers

Traders Magazine, September 1998

Jeffrey L. Winograd

If approved, how would the proposed amendment to the riskless principal trade-reporting rule benefit market makers? The National Association of Securities Dealers provided the following examples in its recent filing published in the Federal Register:

Example 1. A market maker, MM1, holds a customer limit order that is displayed in its quote to buy 1,000 shares of ABCD at $10 a share. A second market maker, MM2, sells 1,000 shares to MM1 at $10. MM2 reports the sale of 1,000 shares as required under current rules. MM1 then fills its customer order for 1,000 shares. Under the proposed rule, the first trade would continue to be reported (by the selling firm MM2 in this case, as required under current rules), but the second leg between MM1 and the customer would not be reported, as it is deemed riskless.

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