The Board of the International Organization of Securities Commissions (IOSCO) today published a report that explores how liquidity provision has evolved in equity securities markets in recent years.
The report, titled Liquidity Provision in the Secondary Markets for Equity Securities, identifies some of the key elements of market making programs that may help promote the provision of liquidity, strengthen investor confidence and foster fair and efficient markets.
Liquidity provision in equity securities markets plays a vital role in price discovery, thereby helping markets to function efficiently. This report, based on a survey of regulatory authorities, trading venues and market intermediaries, considers how liquidity provision has evolved in equity securities markets.
The report identifies several common themes which regulators could consider as key elements in relation to market making programs and/or other liquidity provision incentive arrangements, in particular:
• Registration of market makers;
• Obligations imposed on market makers;
• Balancing the obligations and benefits of the programs;
• Monitoring compliance with the program; and
• Public disclosure about the programs.
This report and the key elements identified were prepared prior to the COVID-19 pandemic. IOSCO is discussing possible future work relating to the impact of the pandemic on market making and liquidity in equity securities markets.