FCA Handbook - SSR 5.13 Guidance on the performance of market making activities

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SSR 5.13 Guidance on the performance of market making activities

For the purposes of SSR, market making activities is defined in the Glossary by reference to the Short Selling Regulations 2025. That definition provides that, in accordance with regulation 9(5)(c) of the Short Selling Regulations 2025, market making activities means the activities of an investment firm, a credit institution or an overseas entity where it deals as principal in a financial instrument, whether traded on or outside a trading venue, in any of the following capacities:

(1) by posting firm, simultaneous 2-way quotes of comparable size and at competitive prices, with the result of providing liquidity on a regular and ongoing basis to the market (paragraph (a) of the Glossary definition of market making activities; regulation 9(5)(c)(i) of the Short Selling Regulations 2025);
(2) as part of its usual business, by fulfilling orders initiated by clients or in response to clients’ requests to trade (paragraph (b) of the Glossary definition of market making activities; regulation 9(5)(c)(ii) of the Short Selling Regulations 2025); or
(3) by hedging positions arising from the fulfilment of tasks under (1) or (2) (paragraph (c) of the Glossary definition of market making activities; regulation 9(5)(c)(iii) of the Short Selling Regulations 2025).

As set out in SSR 5.4.1R, the market maker exemption is an activity-based exemption.

Market making activities may be carried out in a financial instrument other than an admitted share, including but not limited to derivatives.

The market maker exemption only applies to short selling activity carried out for the purpose of market making activities. It does not apply to the person’s proprietary trading, which is subject to SSR 2 and SSR 3.

(1) Arbitrage activities are not considered market making activities and are, therefore, not subject to the market maker exemption.
(2) The activities specified in (1) also include those arbitrage activities executed between different financial instruments but with the same underlying admitted share.

Persons performing market making activities are expected to not hold significant short positions other than for brief periods.