Liquidity Providers (LPs) act as market makers in the NYSE Euronext cash market model's order-driven system. They bring greater price stability and distribute securities to both retail and institutional investors.
Principle tasks of LPs are:
LPs mainly concentrate on small and mid cap companies, since listed companies with large market capitalization generate greater liquidity. Also, criteria for liquidity provision on large-cap equities are more restrictive. Liquidity provision is not permitted for any of the equities included in the Euronext 100 Index. In the bond market, liquidity provider agreements are signed between the concerned Euronext market operator and the Liquidity Provider and are based on the applicable national governing rules, which differ depending on the method of listing and the type of issuer (e.g., government or corporation). For equities, NYSE Euronext has identified two distinct profiles of liquidity provider activity—namely corporate brokers and dealers.
The activity of these LPs is strongly related to that of small and mid cap companies. They provide listing sponsorship, research and/or promotional services to companies throughout the listing process, in addition to the usual LP trading service, once the company has been listed. NYSE Euronext aims to have a maximum of two corporate-broker LPs per equity.
These LPs perform hedging and arbitrage activities on the more liquid equities and are therefore more focused on blue chips and/or foreign shares (often equities that function as the underlying for options). They have adjusted requirements and specific trading fees.