
Market making is becoming increasingly important for the markets as trading volume is on the decline and as liquidity has been showing signs of drying up. Following the flash crash, the authorities proposed tighter regulations for market makers, in part to ensure that they continue to provide useful liquidity in times of market stress. Among the discussions are incentives that can be provided to the designated market makers. Profit margins for market makers have been declining amid a proliferation of high-frequency trading and the resulting reduction of the bid-ask spread.