Chapter 04 · Section 4.1
Market Maker vs. Specialist-1
Which of the following are basic differences between the Specialist System and the Competing Market Maker System?
a) In the Competing Market Maker System, public orders are placed into one "book", the best prices of which are visible to the trading crowd. There is no such central order book in the specialist system.
b) In the Competing Market Maker System, market makers' quotes may not cause a spread of more than a specified maximum between bid and ask.
c) In the Competing Market Maker System, market makers must enter sincere quotes. If they decline to quote, they lose their right to be a market maker for that specific option class.
It is feasible to regulate market makers' quotes in two ways: either by limiting the spread between bid and ask, or by an obligation to quote. The two of them together, however, would make market making unattractive.
In the Competing Market Makers System, there is an order book official. The order book official is in charge of the order book.