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Montréal Exchange Market Making Programs
Market Maker Role
Market makers play an important role and their presence is necessary as they provide and improve market liquidity while contributing to price discovery. Liquidity provided by market makers is essential to attract and preserve customer order flow that will contribute to the growth and the efficiency of the Canadian derivatives market.
Accordingly, and in the best interest of the market, the Bourse can choose market makers not only from approved participants but also from approved participants' clients.
Market Making Programs
The terms and conditions that apply generally to all programs are set forth in section 3.112 of the rules of the Bourse. Terms and conditions applicable to specific programs will be published by the Bourse via circular or other forms of communication.
Market Making Eligibility
To be eligible for market making status, the applicant has to be either:
- an approved participant of the Bourse; or
- a client of an approved participant of the Bourse,
Eligible market participants may submit their candidacy for a market-making role under a program in accordance with the application procedure determined by the Bourse. The general terms and conditions of the application procedure are set forth in the rules of the Bourse. Terms and conditions applicable to specific programs will be published by the Bourse via circular or other forms of communication.
The Bourse selects market makers taking into consideration:
- their ability to meet the quoting requirements of the relevant product(s) on an electronic trading platform;
- the adequacy of their capital;
- their experience with trading a similar derivative instrument;
- their willingness to promote the Bourse as a marketplace;
- their operational capacity;
- their trading infrastructure and technology to support electronic trading;
- their support personnel;
- their history of compliance with the regulations of the Bourse;
- their general reputation;
- their past performance in relation to fulfilment of market maker obligations in other programs and the contribution that their prices and trading activity have made to market activity in other products, where relevant;
- their level of access to the underlying cash market;
- any other factor which the Bourse deems relevant.
Market Making Agreement
A market making assignment under a program is conditional upon the signature of a Market Making Agreement between the selected market maker and the Bourse.
Specific market making obligations and the terms of the Market Making Agreement are contractual obligations between the Bourse and the market maker; they are not considered regulations of the Bourse.
Conditions specific to clients of an approved participant
- A market maker who is a client of an approved participant:
- is subject to the jurisdiction of the Bourse acting as a self-regulatory organization, including its Regulatory Division and any of its Committee;
- must comply with all the regulations of the Bourse as if it was itself an approved participant, with the necessary adaptations.
- The Bourse shall not grant any market-making assignment to a client who has been authorized by an approved participant to electronically transmit orders to the Bourse without first obtaining the acknowledgment of the approved participant providing such electronic access.
- Neither the approved participant nor the client shall be relieved of any responsibility or obligation with regards to the electronic access of the client. However, the approved participant shall not be liable with regard to market-making obligations.
Description of Market Making Programs
The Bourse's market model is based on a system of competitive market makers whose presence is essential as they provide and enhance market liquidity, as well as facilitate price discovery. Their presence guaranties both retail and institutional clients increased transparency, easy access and ensured competition.
Futures and Options on Futures Market Making Program
Market Making Obligations:
Futures/options on futures Market Makers must fulfil a specified set of obligations whereby they are required to post valid quotes with a minimum rate of presence during the specified trading period.
Market Makers are entitled to incentives such as fee waivers on market maker execution and clearing fees, as well as profit share and/or stipends in some cases, depending on the product in question.
The Program is designed to reward Market Makers based on quantitative performance metrics such as:
- Monthly market maker volume
- Minimum average size
- Maximum average spread
- Minimum average rate of presence
The performance metrics are evaluated and Market Makers are compensated according to the incentive scheme specified for the product in question.
Equity and ETF Options Market Making Program
Market Making Obligations:
Equity/ETF options Market Makers have two sets of obligations: Basic obligations where market makers are required to post a valid quote with a minimum rate of presence at the open and during continuous trading session, and incentive related obligations where they are compensated for the services they provide and their activity in the options market.
As long as the market makers meet the basic quoting requirements, they will be entitled to privileges such as Bulk Quote messages, enhanced messaging throughput capabilities, Bulk Quotes Management Tool and reduced market makers execution and clearing fees.
Market Makers must fulfill the basic obligations to be eligible to participate in the incentive program.
This Program that has more stringent obligations, is designed to reward market makers based on several quantitative metrics such as:
- Monthly market maker volume
- Rate of presence with a valid quote in ≤ 9 months options
- Rate of presence at the close
- Rate of presence with a valid quote in > 9 months options
- Number of assigned option classes
For any given month while the Program is effective, eligible options market makers will collectively receive a pool of money, shared among them based on their performance which will be evaluated based on the criteria described above.
Once all the metrics are calculated along with their weights, a final score is calculated to reflect the Market Maker's share of the pool of incentive.
For more information on this program or on how to become a market maker on the Bourse, please contact:
Gladys Karam, Director, Equity Derivatives
Standard Market Making Agreements
- Standard Futures/Options on Futures Market Making Agreement
- Standard Options Market Making Agreement
List of Market Makers