Are market makers obligated to keep the option markets liquid?

Question

I know that each stock has at least one market maker that is responsible for keeping the equity market flowing, but what about the options market?
Are the respective market makers also bound by obligation to step into the options market when the bid-ask spread is too large?

Bob Baerker · Accepted Answer

There is a maximum size for a Valid Width Quote and its size varies depending on the price of the option as well as whether it's a standard option or a LEAP and if ITM or not.  If I remember correctly, the maximum is $5.
It's not that the market maker has to step in but rather that he could post his quotes at the maximum and if traders were not placing orders within that maximum then the market maker's quotes would display the maximum.

xirt · Answer

Yes.
All exchange members appointed as an options market maker have a continuous quoting obligation (usually more than 60% of the series and time in a given class), combined with an obligation to quote no more than $5.00 wide (except in certain circumstances).
An exchange generally will only begin listing a security if there is a sufficient number of market makers and will delist such securities if there aren't enough market makers in a given security (e.g. the existing market makers have resigned from their market maker appointment).
See this link for a longer description

Are market makers obligated to keep the option markets liquid?

2 Answers

Add your own answers!

Ask a Question