Inferring Market Makers from Order-Level Book Data

Summary

The document discusses how to infer which participants may be market makers in an options order book. Visible traits such as quoting at the best prices, balanced bid and offer size, repricing with the underlying, or using non-round ticks can offer clues, but none identifies a market maker reliably on its own.

A stronger approach is to examine how displayed quantity at a price level is composed, using exchange data that records order additions, changes, cancellations, and trades. Reconstructing this order-level book can reveal recurring order sizes across strikes. Those patterns can then be compared with the exchange’s liquidity-provider obligations, such as minimum quote sizes or strike coverage. The inference remains uncertain: order-level patterns may be consistent with a market maker’s obligations, but they do not prove who placed an order, and the needed data and reconstruction work may not be available on every exchange.

Key ideas

• Best-price quotes and balanced displayed size are possible clues, not definitive identifiers.
• Order-level event data can reveal how aggregate size at each price is assembled.
• Reconstructing the book may require substantial data processing and coding.
• Repeated order sizes across strikes can be compared with exchange liquidity-provider requirements.
• Observed patterns support inference but do not establish participant identity.

Tags

# How to identify market makers in an orderbook?


# How to identify market makers in an orderbook?












I am trying to identify markets makers within an (options-)orderbook. Of course, this is far stretched, but I was wondering what kind of characteristics / patterns I should look at. I got the following sofar:

- likely, but not necessarily best bid and best offer

- symmetry; a similar amount of contracts bid and offered. This can change due to delay in "reloading"

- changing quote as underlying price/fair value changes

- more likely to quote on odd ticks than round numbers

Below is an example of the orderbook I will be looking at. This represents all the information available

What are additional things I can look at? Thanks in advance,

## Answer by youtta (score 8)

https://quant.stackexchange.com/a/55585

You could also look at how each price level is made up.

For example how is the 18 lot on the bid price 0.0995 collated. Is it a 5 lots, 5 lots, 7 lots and 1 lot. You can do this on certain exchanges as they have an enhanced order book where you can see every insert, modification, delete and trade. This may require you to recreate the order book, which requires some decent coding knowledge.

When you understand how each level is made up on a more granular level, you can then compare this versus exchange liquidity provider requirements. The exchange may require that MM's have to quote X number of strikes in at least 7 lots during the trading day. Hence, inferring the 7 lots may be a MM if seen across a number of strikes.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.