Ask a Trader: The Structure of Financial Markets

As part of Citadel Securities’ trader development program, The 110, we provide an opportunity to ask questions to some of Citadel Securities’ own experienced traders from our private Office Hours Facebook group.  We want to share both the questions and answers with you. This month, we covered key topics related to the structure of financial markets. Don’t forget to tune in next month when we answer more questions on a new set of topics.

What is the role of a market maker in helping the markets to function properly?

At the center of a marketplace, the market maker facilitates trading between buyers and sellers and provides liquidity to keep markets functioning smoothly. Hear more from Citadel Securities’ Donnie Phillips who explains the evolution of markets, the role of market makers, and how they impact the real economy:

How do markets differ in structure across asset classes and regions?

While the basic function of markets – matching buyers and sellers – is constant, the way our stock, bond, commodity, foreign exchange, and derivatives markets are organized varies considerably, even from country to country.

Across these markets, there are differences in:

• Price and liquidity discovery mechanisms
• Types of trading venues
• Levels of transparency
• Means of access
• The use of clearing and settlement systems

These differences are sometimes a direct reflection of the characteristics of a specific market, such as the number and types of market participants, but in other instances, these differences are due simply to legacy practices or infrastructure in need of modernization.

At Citadel Securities, we’re always looking for new opportunities to push for further market structure evolution to make each of these different markets more fair, open, competitive and transparent.

These similarities and differences across markets offer students the ability to turn a passion for the markets into a career driven by constant opportunities to learn and take on stimulating challenges.

How do market makers collaborate with exchanges?

Market makers and exchanges are inextricably linked. For example, Citadel Securities is the largest Designated Market Maker (DMM) on the New York Stock Exchange (NYSE). We support the trading of more than 1,400 securities on the NYSE. DMMs typically have obligations that are determined by the exchanges to provide liquidity, dampen volatility, and offer support for their listed companies. These obligations are regularly monitored and refined – often with important feedback and consultation provided by market makers. More broadly, market makers and exchanges work closely together to provide consistent and ample liquidity to the capital markets.

Have questions of your own that you’d like answered from our traders? Be sure to ask on Facebook.

Interested in learning more about The 110? Find out how you can join the next generation of elite traders through tailored programs that include coursework, trading rotations, case studies and mentorship opportunities here.