A Study On Market Efficiency Of Market Maker Mechanism

The financial assets exchange market is one of the blooming branches of the capital market, it has expanded into various fields and dramatically extended the depth of capital market. The experience of grown markets has indicated that diversification of financial market is vital to the development of multilevel capital markets. Diversification will accelerate the liquidity of the market, optimize the allocation of resources, and discover the real price of financial assets.China’s financial assets exchange market construction is lagged, but it has been making progress. In recent years, every province and municipal direct had founded local FAEs respectively. Among those areas. Beijing, Shanghai, Tianjin, Chongqing, Yunnan, are most representative.A great deal of research has manifested that the features of financial assets exchange, particularly liability financial assets exchange, are quite different from those of traditional capital markets. Therefore, auction mechanism can not content the demand of emerging market, market maker mechanism has its merits in liquidity, stability, transparency, effectiveness, etc. So, market maker mechanism is the supplement of auction mechanism, for this reason, it is adopted as the dominant mechanism in the early stage of NASDAQ and LSE.In domestic market, market maker mechanism is applied in inter-bank market and foreign exchange market. Recently, market maker mechanism has aroused wild academic concern. However, the study on this domain is only in the beginning stage in China, the existing literature mainly focused on the stock market and bond market. Market efficiency is both the core proposition of economics and the prior objective of exchange mechanism design. It is also the reference for mechanism chosen. CQFAE is one of the emerging market which adopted market maker mechanism as the exclusive exchange mechanism. After one year’s practice, the market maker system matures gradually, so it provides us a valuable sample and case for research. This article is aimed at making innovation in this domain. This dissertation begins with theoretical analysis, and 3 questions will be answered in turn. Primarily, what is market maker mechanism and what functions it has? Furthermore, how will market maker mechanism affect the market efficiency? Last, but not least, what kind of market maker mechanism is fit for emerging market? With those 3 questions above, the analysis of this dissertation ranges from universality to particularity, from theory study to empirical analysis, from abstract to materiality.First, under the framework of principal summarization, we analyzed the features of different exchange mechanisms. The conclusion indicated that market maker mechanism is the dominant mechanism of OTC markets and emerging markets overseas. According to the comparison of domestic market and foreign market, there is a composite trend of market maker mechanism. Then we turned to analyze the relationship of market maker mechanism and market efficiency, the results suggested that the supervision effectiveness has affirmative effect on market efficiency.Based on the theoretical analysis, we take the sample of CQFAE as the case of empirical analysis. We drew the conclusion that monopolized market maker mechanism promoted market efficiency; increasing non-deal revenue appropriately would enhance market efficiency and market supervision is closely related to market efficiency.At the end of this dissertation, the relevant suggestions were proposed.