Does Football Index implement any measures to stimulate the market?
Yes. In order to ensure that the market runs smoothly and it has enough liquidity, we may employ certain measures from time to time. These may include the use of Market Makers and liquidity incentive schemes. We may fund Market Makers from time to time and may also purchase shares ourselves to assist with liquidity. We will always be transparent about the measures that we use.
What is a Market Maker?
A Market Marker is an entity whose mandate is to buy and sell whatever the market trades in order to help keep the market moving, which is also known as being “liquid”.
In order to achieve this a market maker will hold inventory short term by ‘buying’ and then releasing the inventory by ‘selling’.
Markets of a certain size generally have Market Makers. In our market they help by ensuring that trades are easily matched. Without Market Makers a market would not function as fairly and efficiently as it could, their benefits are distributed widely and felt by most market participants alike.
Why does Football Index have a Market Maker?
Football Index uses the services of a Market Maker who trades on behalf of accounts held by Index Labs Ltd (which owns BetIndex Ltd).
In the early days of Football Index we learned through customer feedback and experience, that there could be timing mismatches on supply and demand for a given footballer due to the constantly changing landscape of Football, and recognised it as an important element of a liquid market.
Our intention from this provision is not to profit from the trades but to provide liquidity as no market can function without it, so we have invested a significant sum over time in buying shares which are held by the Market Maker.
Why would Football Index offer liquidity incentive schemes?
From time to time we may offer liquidity incentive schemes to invited customers. The reason that we may offer such incentive schemes is to provide additional funding in order to maintain stability across the Index. These customers will have completed all relevant due diligence checks and will have agreed to all terms associated with these schemes, which may include commitments to hold positions for certain periods of time.
How does this actually work at Football Index?
The Market Maker operates from a separate company from BetIndex Ltd (the holder of the operating licence that Football Index offers bets from). As Football Index develops, we expect further third-party Market Makers to participate in the market.
We have a Market Maker policy which must be adhered, these restrictions include, but are not limited to: the volume of shares that are eligible to be purchased and when they can be purchased.
Market Making involves buying and selling shares through trading accounts and this activity is limited through financial controls relating to the scale of the market. The Market Maker is not permitted by the board at this time to hold more than a small percentage of the market; this is designed to avoid having a significant impact on pricing.
This type of trading makes up a small percentage of market trading volume; it involves buying and selling to manage and hedge risk. From time to time Market Makers may purchase Shares from users for subsequent cancellation in order to maintain the integrity of the overall Index.
In order to facilitate complying with these policies and also to help manage the substantial risk that Market Makers undertake they have a different level of access from other customers.
What is the benefit of Football Index having a Market Maker for our traders?
As a result of Market Maker’s activities and liquidity incentive schemes, more trades are completed successfully.