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arXiv · 2602.01817

Do designated market makers provide liquidity during downward extreme price movements?

Mario Bellia·Kim Christensen·Aleksey Kolokolov·Loriana Pelizzon·Roberto Renò
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Abstract

We study the trading activity of designated market makers (DMMs) in electronic markets using a unique dataset with audit-trail information on trader classification. DMMs may either adhere to their market-making agreements and offer immediacy during periods of heavy selling pressure, or they might lean-with-the-wind to profit from private information. We test these competing theories during extreme (downward) price movements, which we detect using a novel methodology. We show that DMMs provide liquidity when the selling pressure is concentrated on a single stock, but consume liquidity (leaving liquidity provision to slower traders) when several stocks are affected.

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Mario Bellia, Kim Christensen, Aleksey Kolokolov, Loriana Pelizzon, Roberto Renò. 2026-02-02. Do designated market makers provide liquidity during downward extreme price movements?. https://doi.org/10.1016/j.finmar.2025.100988

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