
Core Liquidity Provider
A core liquidity provider is a financial institution that acts as a middleman in the securities markets. A key characteristic of core liquidity providers is that they continually provide liquidity in all market conditions, not just when they find it advantageous to buy or sell a security. The term core liquidity provider describes the function of these firms: They may simultaneously buy and sell shares of a security with the goal of ensuring that it is always available on-demand. Ideally, the core liquidity provider brings greater price stability to the markets, enabling securities to be distributed on-demand to both retail and institutional investors. The core liquidity provider makes a market for an asset by offering their holdings for sale at any given time while simultaneously buying more of them.

What Is a Core Liquidity Provider?
A core liquidity provider is a financial institution that acts as a middleman in the securities markets. The providers buy large volumes of securities from the companies that issue them and then distribute them in batches to financial institutions who then make them available directly to retail investors. This is often facilitated by ECN brokers.
The term core liquidity provider describes the function of these firms: They may simultaneously buy and sell shares of a security with the goal of ensuring that it is always available on-demand. A core liquidity provider is also known as a market maker.
Core liquidity providers are typically institutions or banks that underwrite or finance equity or debt transactions and then make a market or assist in the trading of the securities.



Understanding the Core Liquidity Provider
Ideally, the core liquidity provider brings greater price stability to the markets, enabling securities to be distributed on-demand to both retail and institutional investors. Without their participation, the liquidity or availability of any given security would not be guaranteed and the ability of buyers and sellers to buy or sell it at any given time would be diminished.
They quite literally make a market for an asset by offering their holdings for sale at any given time while simultaneously buying more of them. This pushes the volume of sales higher. But it also allows investors to buy shares whenever they want to without having to wait for another investor to decide to sell.
Their activities underpin some routine practices in the market, such as hedging. In the commodities markets, for instance, farmers and food processing companies invest regularly to protect their businesses against declines or increases in future crop prices.
Special Considerations
A key characteristic of core liquidity providers is that they continually provide liquidity in all market conditions, not just when they find it advantageous to buy or sell a security. Unlike traders, their business model is not dependant on securities prices.
The core liquidity provider makes a market for an asset by offering their holdings for sale at any given time while simultaneously buying more of them.
A bank, financial institution, or trading firm may be a core liquidity provider. The different business models and capabilities of these liquidity providers allow them to serve the market in different ways.
Their Role in IPOs
Perhaps the best-known core liquidity providers are the institutions that underwrite initial public offerings (IPOs). When a company goes public on a stock exchange, it selects an underwriter to manage the process. The underwriter buys the stock directly from the company and then resells it in large batches to large financial institutions, which then make the shares available directly to their clients.
Related terms:
Anonymous Trading
Anonymous trading occurs when high profile investors execute trades that are visible in an order book but do not reveal their identity. read more
Disintermediation
Disintermediation is the removal of a middleman in the supply chain to allow producers to sell directly to their customers. read more
ECN Broker
An ECN broker is a forex financial expert that uses electronic communications networks to give clients access to other participants in currency markets. read more
Electronic Communication Network (ECN)
ECN is an electronic system that matches buy and sell orders in the markets eliminating the need for a third party to facilitate those trades. read more
Hedge
A hedge is a type of investment that is intended to reduce the risk of adverse price movements in an asset. read more
Institutional Investor
An institutional investor is a nonbank person or organization trading securities in quantities large enough to qualify for preferential treatment. read more
Initial Public Offering (IPO)
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. read more
Make a Market
Make a market is an action whereby a dealer stands by ready, willing, and able to buy or sell a particular security at the quoted bid and ask price. read more
Seasoned Security
A seasoned security is one that has been publicly traded in the secondary market long enough that there won't be much in the way of short-term effects as a result of its IPO. read more
Spot Secondary
Spot secondary refers to the sale of a security that does not require SEC registration and is closed the next business day after the offering is made. read more