Liquidity providers act as market makers and bring greater price stability. They can distribute securities to both retail and institutional investors.
A security is said to be liquid when it can easily be acquired or converted into cash, without having an impact on the price. Liquidity providers are usually appointed by small- and mid-cap companies for which the volume of trade in shares is substantially smaller than for listed companies with large market capitalisation of which the shares are more liquid. In addition, liquidity provision is not permitted for any of the equities included in the Euronext 100 Index.
Role of liquidity providers
Principle tasks of liquidity providers are to:
- protect against variations in volatility on the market;
- guarantee transactions at all times at the best price; and
- boost the volume of transactions in the Central Order Book.
In the bond market, liquidity provider agreements are signed between the relevant Euronext market operator and the liquidity provider. They are based on the applicable national governing rules, which differ depending on the method of listing and the type of issuer (e.g., government or corporation).
For equities, NYSE Euronext has identified two distinct profiles of liquidity provider activity—namely corporate brokers and dealers.
For further information on liquidity providers also see: www.euronext.com.