Why Market Maker Selling May Not Depress the Closing Price

Summary

The document addresses why substantial end-of-day share sales by market makers may occur without an obvious price decline. Its explanation is that market makers do not all start with the same inventory: those holding long positions may want to sell, while those who are short may want to buy shares to cover. If their aggregate supply and demand are roughly balanced, these opposing inventory-reduction trades can offset one another.

The proposed mechanism is trading among market makers as they reduce positions, which can help absorb the flow without a large net imbalance. The question references an observed trading day and a Microsoft chart, along with similar observations in other securities, but the answer does not analyze those data or establish how much trading occurred between market makers. It offers a qualitative explanation rather than a general rule: price impact still depends on net order flow, available liquidity, and market conditions, none of which are quantified in the exchange.

Key ideas

• Market makers with long inventory may sell shares near the close to reduce exposure.
• Market makers with short inventory may buy shares to cover those positions.
• If the opposing inventory-reduction flows balance, they can trade with one another and limit net selling pressure.
• The explanation is qualitative and does not quantify order flow, liquidity, or price impact.

Tags

# Answer by Bob Jansen (score 2, accepted)


# How do market makers manage to sell a large number of shares at the end of a trading day without a significant reduction in their price?












The trading day of May 9, 2019 was remarkable in this respect.

I have attached the Microsoft screenshot as an example, but I observed the same in many other securities.

## Answer by Bob Jansen (score 2, accepted)

https://quant.stackexchange.com/a/45545

You're right that market makers that are long are inclined to get rid of stocks at the end of the day. But, market makers that are short are inclined to cover their shorts, maybe even more so.

So, if at the end of the day supply and demand is more or less balanced one would expect the overall position of the market makers to net out. Since, they all try to reduce their positions they are inclined to trade with each other as you noticed.

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.