Nasdaq Market Makers

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The Nasdaq market is made up of over 500 market makers and

ECNs, all of whom are attempting to improve liquidity. The market

makers are divided into two groups. One is made up of institutional

market makers, such as Goldman Sachs, and the rest fall into what I

term retail market makers. Both are required to maintain liquidity

on both sides of the market. If market makers are willing to sell a

stock at a set price, they must be willing to buy it back. When you

buy or sell a stock on the Nasdaq, you need to understand that the

same market maker who sold you stock at a certain price is more

than willing to buy it back from you at a lower price. Market makers

always buy low and sell high. Market makers' willingness to buy and

sell at specific prices is reflected on a Nasdaq Level II screen. They

literally advertise their intention to either buy or sell. Just as a specialist

is assigned specific stocks on the NYSE, the Nasdaq market

makers are responsible for providing liquidity for a group of stocks.

In most cases, the stocks for which they make markets have varying

degrees of volatility. By balancing the volatility, the market makers

can perform their function more efficiently. This is not just for the

benefit of the public, because, like specialists, market makers can

and do trade for their own accounts.

Institutional Market Makers

There is an old riddle that goes, "How do you dance with a 500-

pound gorilla?" The answer is, "Any way he wants." When it comes

to the markets, one of your jobs is to quickly ascertain which 500-

pound gorilla is trading the stock. The major player in the stock is

known as the ax because if you are not paying attention to what this

player is doing, you may lose you head and your money. The ax is

more prominent in stocks that are not heavily traded. In that case,

you need to follow what the ax is doing very carefully. A stock like

Microsoft that has enormous trading volume makes it difficult, if not

impossible, for one market maker to dominate trading in that stock.

You will see three or more market makers who are active on any

given day in a stock like Microsoft. Again, you need to know what the market markers are doing. Are they buying and selling at a specific

price level? Are they buying and selling for their own account

or their customer accounts? If they are buying for their own

accounts, they want to buy low and sell high. This means that they

are buying stock on the bid and offering stock on the ask. In general,

market makers buy stocks that are going down and sell stocks that

are going up. They do this in small fractions of a point, which makes

market markers the ultimate scalpers. Institutional market makers

represent their customers (i.e., other firms or their retail account

clients) or themselves. When they represent themselves, they are

trading for their own accounts and tend to be out of the trade very

quickly. When they represent the client, they are acting in an agent

capacity and receive a commission. These trades are in most cases

positions of longer time frames and are typically large numbers of

shares. You want to identify the institutional market makers

because they carry the big stick, and if you are not on the right side

of the trend they can beat you with it. Following are lists of institutional

market makers and retail market makers, along with their

symbols. The market makers that make a market in a specific stock

are displayed on a Nasdaq Level II screen. A few market makers

(e.g., Merrill Lynch) are both institutional and retail market makers.

A good example of a retail market maker would be Dean Witter or

Charles Schwab. These market makers buy and sell in an agent

capacity, thus providing liquidity for the market.

You want to make note of who is on the bid or ask. Are the retail market

makers selling customer orders, or are the institutional market

makers buying or selling for their own account?

The following is a more extensive list of market makers. Those

shown are the major market makers. (The list is not complete as

there are more than 500 market makers.)

Market Makers List

Alex Brown BTSC

Bear Sterns* BEST

CIBC Oppenheimer* OPCO

Cowen & Co. COWN

Credit Suisse/First Boston* FBCO

Dean Witter Reynolds Inc.* DEAN

Donaldson, Lufkin & Jenrette* DLJP

Goldman SachsT GSCO

Gruntal&Co. GRUN

Herzog, Heine, Geduld* HRZG

Jefferies & Co. JEFF

J.P. Morgan SecuritiesT JPMS

Knight Securities LP* NITE

Lehman Brothers* LEHM

Mayer SchweitzerT MASH

Merrill Lynch* MLCO

Montgomery Securities * MONT

Morgan Stanley* MSCO

NashWeiss&Co. NAWE

Needham&Co.* NEED

PaineWebberT PWJC

Prudential Securities * PRUS

Robert Stephens RSSF

Salomon Smith Barney* SBSH

Schonfeld Securities SHON

Soundview Financial SNDV

Togster Singer Corp. TSCO

Tucker Anthony TUCK

UBS Securities UBSS

* Indicates major market makers.

T Indicates that the market maker is the ax on many occasions.

There are many additional market makers, but the ones listed here

seem to be the most active, becoming the ax in a given market (i.e.,

the major buyer or seller who makes the market around which

everyone else participates).