Let's say that he doesn't want to sell the shares short in order to fill the order and he has zero inventory.
There is abstract inventory and MM is exempt from reg T ( to a great extent). I.e. the MM creates an artificial short. It's a book keeping entry.
That means that he must accumulate, in this case, 100K shares so that he can sell it to the buyer.
Nope. Exempt. Doesn't have to borrow shares. They do have certain margin limits though. SMA haircut is so thin these days you'd swear they're bald.
So the MM is an active buyer at the bid until he accumulates the 100K shares that he needs to sell to the buyer. Traders can see on L2 that the MM is continually refreshing his bid, so they start to buy driving the price up.
Once you understand the above synthetic power, you will start seeing all the rest I've stated. The MM firm nets the net and settles with the clearing corporation by tendering a check at the end of the day. Actually clears electronically now. All just a push on-balance over time and remarkably net zero clear.
BTW, when I am daytrading and looking for the end of an uptrend, I look for the big blocks to hit on the ask.
Market orders to buy.
In this case, when the 100K block hits on the ask, the MM is no longer a buyer,
You have to understand that the MM mostly just manages the B/A. In the above case if there is insufficient public supply at the ask and the nearby public supply is too far away to be considered price continuous, then the MM sells short to supply so no hole would appear.
because he has filled the order, and you can see that he is no longer bidding.
Do you mean no longer supplying the ask? That would be backing away and it is illegal. Has to maintain a fair and orderly market. That means can't run away from having to sell when the big boys are picking up the book. No one says they have to stand in front of a freight train though. MMs have deep enough pockets so that they never should need to back away, but there is always an '87 crash lurking to get them to lose confidence in "full faith and credit". On the floor of the options exchange when you see your number called on the annunciator, you immediately make a beeline for the bathroom which is usually filled with MMs smoking and playing cards! |
