How can Market Making Aid in Developing Financial Markets
This thesis project examines the crucial role that market makers can play in enhancing liquidity and aiding the development of financial markets, with a particular focus on emerging economies. Market making involves providing buy and sell quotes for financial securities, thereby facilitating trading...
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| Format: | Thesis |
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Massachusetts Institute of Technology
2024
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| Online Access: | https://hdl.handle.net/1721.1/156035 |
| _version_ | 1826208743209041920 |
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| author | Imbern, Enrique Marcos Müller |
| author2 | Cohen, Jacob |
| author_facet | Cohen, Jacob Imbern, Enrique Marcos Müller |
| author_sort | Imbern, Enrique Marcos Müller |
| collection | MIT |
| description | This thesis project examines the crucial role that market makers can play in enhancing liquidity and aiding the development of financial markets, with a particular focus on emerging economies. Market making involves providing buy and sell quotes for financial securities, thereby facilitating trading and contributing to market liquidity. The project delves into the evolution of financial markets, tracing their origins from basic commodity trading to the establishment of formal stock exchanges and the subsequent advancements driven by technological innovations. The analysis highlights the indispensable function of market makers in global financial markets, emphasizing their contributions to liquidity provision, price discovery, and market stability. The project underscores the specific challenges faced by emerging financial markets, such as limited liquidity, high volatility, and underdeveloped regulatory frameworks. It explores the case of Argentina as a representative example, discussing the impact of its 2001 debt default on the country's financial system and the subsequent need for market revitalization. The project presents a detailed analysis of liquidity-enhancing strategies employed by various emerging markets, drawing insights from case studies across different regions. It examines the initiatives undertaken by exchanges and regulators to broaden investor participation, promote financial literacy, reform corporate governance standards, and invest in advanced trading technologies. The transformative potential of market making in emerging markets is highlighted, focusing on its ability to enhance liquidity, reduce information asymmetry, provide market consensus, stabilize prices, facilitate economic growth, and bridge the gap with developed markets through technological adoption. The project delves into the critical importance of fostering a diverse investor base, both domestic and international, and the role of market makers in attracting and retaining investors. It discusses strategies for expanding product offerings, such as the introduction of exchange-traded funds (ETFs) and derivatives, as well as the creation of regional market linkages to increase liquidity and investment opportunities. 2 Furthermore, the project emphasizes the need for an enabling market environment, encompassing factors such as advanced trading infrastructure, efficient pre- and post-trade processes, reliable market data, and appropriate regulatory frameworks. It explores the incentives and compensation models for market makers, examining the various schemes employed globally. In conclusion, the thesis project presents a comprehensive analysis of the challenges faced by emerging financial markets and the pivotal role that market makers can play in addressing these challenges. By enhancing liquidity, promoting market efficiency, and fostering investor confidence, market makers have the potential to catalyze the development and growth of emerging financial markets, ultimately contributing to economic prosperity. |
| first_indexed | 2024-09-23T14:11:20Z |
| format | Thesis |
| id | mit-1721.1/156035 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T14:11:20Z |
| publishDate | 2024 |
| publisher | Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/1560352024-08-13T03:20:33Z How can Market Making Aid in Developing Financial Markets Imbern, Enrique Marcos Müller Cohen, Jacob Sloan School of Management This thesis project examines the crucial role that market makers can play in enhancing liquidity and aiding the development of financial markets, with a particular focus on emerging economies. Market making involves providing buy and sell quotes for financial securities, thereby facilitating trading and contributing to market liquidity. The project delves into the evolution of financial markets, tracing their origins from basic commodity trading to the establishment of formal stock exchanges and the subsequent advancements driven by technological innovations. The analysis highlights the indispensable function of market makers in global financial markets, emphasizing their contributions to liquidity provision, price discovery, and market stability. The project underscores the specific challenges faced by emerging financial markets, such as limited liquidity, high volatility, and underdeveloped regulatory frameworks. It explores the case of Argentina as a representative example, discussing the impact of its 2001 debt default on the country's financial system and the subsequent need for market revitalization. The project presents a detailed analysis of liquidity-enhancing strategies employed by various emerging markets, drawing insights from case studies across different regions. It examines the initiatives undertaken by exchanges and regulators to broaden investor participation, promote financial literacy, reform corporate governance standards, and invest in advanced trading technologies. The transformative potential of market making in emerging markets is highlighted, focusing on its ability to enhance liquidity, reduce information asymmetry, provide market consensus, stabilize prices, facilitate economic growth, and bridge the gap with developed markets through technological adoption. The project delves into the critical importance of fostering a diverse investor base, both domestic and international, and the role of market makers in attracting and retaining investors. It discusses strategies for expanding product offerings, such as the introduction of exchange-traded funds (ETFs) and derivatives, as well as the creation of regional market linkages to increase liquidity and investment opportunities. 2 Furthermore, the project emphasizes the need for an enabling market environment, encompassing factors such as advanced trading infrastructure, efficient pre- and post-trade processes, reliable market data, and appropriate regulatory frameworks. It explores the incentives and compensation models for market makers, examining the various schemes employed globally. In conclusion, the thesis project presents a comprehensive analysis of the challenges faced by emerging financial markets and the pivotal role that market makers can play in addressing these challenges. By enhancing liquidity, promoting market efficiency, and fostering investor confidence, market makers have the potential to catalyze the development and growth of emerging financial markets, ultimately contributing to economic prosperity. S.M. 2024-08-12T14:16:51Z 2024-08-12T14:16:51Z 2024-05 2024-06-25T18:21:36.629Z Thesis https://hdl.handle.net/1721.1/156035 In Copyright - Educational Use Permitted Copyright retained by author(s) https://rightsstatements.org/page/InC-EDU/1.0/ application/pdf Massachusetts Institute of Technology |
| spellingShingle | Imbern, Enrique Marcos Müller How can Market Making Aid in Developing Financial Markets |
| title | How can Market Making Aid in Developing Financial Markets |
| title_full | How can Market Making Aid in Developing Financial Markets |
| title_fullStr | How can Market Making Aid in Developing Financial Markets |
| title_full_unstemmed | How can Market Making Aid in Developing Financial Markets |
| title_short | How can Market Making Aid in Developing Financial Markets |
| title_sort | how can market making aid in developing financial markets |
| url | https://hdl.handle.net/1721.1/156035 |
| work_keys_str_mv | AT imbernenriquemarcosmuller howcanmarketmakingaidindevelopingfinancialmarkets |