Token Issuers Must Stop Paying for Market Making

In this post, I will discuss both the function and role of a market maker, the rules that govern market makers in the United States at major exchanges, and how that should guide exchange rules for crypto assets including ICOs and STOs.

One way exchanges create orderly markets is by selecting or permitting market makers who have both an obligation to provide quotations and in return receive special access.

In general, market makers are obligated to provide a quotation, prices to buy or sell an asset, at all times when the market is open.

In that case, the market maker is in competition with other market participants to trade the difference is that market maker may have an obligation to send prices at all times, where the lone trader does not have such obligations.

Those are just some of the obligations that the CBOE places on participants in their market making program, the entire rule delves more deeply into the nuances of the hybrid floor/electronic model and the specifics of the products that are traded on the options exchange, but the general model is that market makers help the exchange to create a fair and orderly market.

Recently, I and some of the companies I am associated with have been approached by token issuers, token technology providers, and token exchanges to make markets for tokens.

Why can't we say yes to making a market and being paid for providing such a service? Our response generally comes down to two problems.

"Promoter" means any person who founded or organized the business or enterprise of an issuer, is a director or employee of an issuer, acts or has acted as a consultant, advisor, accountant or attorney to an issuer, is the beneficial owner of any of an issuer's securities that are considered "Restricted securities" under Securities Act Rule 144, or is the beneficial owner of five percent or more of the public float of any class of an issuer's securities, and any other person with a similar interest in promoting the entry of quotations or market making in an issuer's securities; and.

I originally titled this post "Market Making as a Service" because that was the title of an email I received recently by someone in the STO market, who was suggesting that my firm start offering a service to token issuers and that he could arrange for such contracts.

That starts with ending the practice of issuers or promoters paying for market making.