Affirmative Obligation: Everything You Need to Know
Affirmative obligation necessitates that, for security purposes, experts must build a market when there is not enough public demand to create that market. 2 min read
2. How Does Affirmative Obligation Work?
Affirmative obligation necessitates that, for security purposes, experts must build a market when there is not enough public demand or reserves to create that market. An expert or market maker, as they're sometimes known, are mandated to take on specific duties to help maintain trading continuity and market price security.
What is Affirmative Obligation?
Tasks required by affirmative obligation include putting one side of a sales order through an owner's account when it is not possible to match the other side of the order right away, continuously quoting two-sided markets, and detailing every completed trade within a set time frame. This series of responsibilities is also referred to as positive obligation.
This type of after-hours securities trading, which happens after the official close of an exchange, takes place via phone networks or technological means with the assistance of brokers. In a real-life setting, it is just benchmark securities with a large following of investors that trade after hours.
How Does Affirmative Obligation Work?
- In some situations, there could be numerous requests for a stock but minimal reserves of shares.
- Or alternatively, a large number of shares could be available during a time of minimal demand.
- If a situation such as these exists on the NYSE, affirmative obligation requires that the relevant experts take action.
- In a situation where high supply/minimal demand exists, the specialists must buy shares.
- If there is high demand and a low supply exists, then the specialists should sell shares.
By getting involved and setting up a market, the experts enable trading progression and the market price remains steady.
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