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Theissen, Erik
Westheide, Christian
Year of Publication: 
Series/Report no.: 
CFR Working Paper 16-05
On many equity markets, designated market makers (DMMs) supply additional liquidity for small and mid cap stocks. Whereas prior research has focused on their role in continuous trading, we analyze their activity in call auctions. Using data from Germany's Xetra system, we find that DMMs are most active when they can provide the greatest benefits to the market, i.e., in relatively illiquid stocks and at times of elevated volatility. They stabilize prices and earn positive profits. These results imply that DMMs provide a valuable service to the market, and that they charge an implicit price for that service.
Designated market makers
Call auctions
Document Type: 
Working Paper
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