Definition
Market Maker (SME)
A market maker is a broker appointed in an SME IPO to provide continuous two-way quotes and ensure liquidity in the thinly traded stock.
Because SME stocks have small floats and few buyers, SEBI requires that every SME IPO appoint a market maker for a minimum of three years after listing. The market maker continuously offers bid and ask prices, helping investors enter and exit, and inventories a portion of the issue.
The market maker's role is meant to prevent the price from freezing or gapping due to lack of trades. This obligation is one of the key differences between the SME platforms and the mainboard, where liquidity is provided by the broader market.
Related terms
- Underwriting (IPO)Underwriting is a commitment by an intermediary to buy any unsubscribed shares of an IPO, guaranteeing the company raises its target amount.
- SME IPOAn SME IPO is a public issue by a small or medium enterprise listed on a dedicated exchange platform with relaxed eligibility but higher minimum investment.
- LiquidityLiquidity is how easily an asset can be bought or sold quickly without significantly moving its price.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.