Liquidity Providers (LPs) act as market makers in the Euronext Cash market model’s order-driven system.

The role of LPs on NYSE Euronext’s European Cash Markets is to:

• protect against variations in volatility on the market;
• guarantee transactions at all times at the best price;
• support the volume of transactions in the order book.

In this way the Liquidity Provider is a market specialist for its instruments, and as a result is often the principal point of contact for the issuing company. The Liquidity Provider agreement for equities is combined with a liquidity contract in many cases*. This links the issuing company to a Euronext market member offering a placing, analysis and advisory service, or specializing in initial public offerings (IPOs).

Liquidity Providers mainly concentrate on small and mid caps, since listed companies with large market capitalization generate greater liquidity. The criteria for liquidity provision on large-cap stocks are more restrictive and liquidity provider agreements are not permitted for any of the stocks in the Euronext 100 index.

When the LP enters into a commercial agreement with Euronext to provide liquidity on a product (equities, warrants, exchange-traded funds, exchange-traded vehicles, exchange-traded notes), it undertakes to quote two-way bid and offer prices with a minimum volume size or capital amount, gauged either by the number or the value of instruments, and within a minimum price range or spread.

The warrants market is traded via the dedicated Warrants product segment. In this instance it is mandatory that the issuer of the warrant is also the LP for the launch of the product. The same rules apply for certificates and convertible bonds.

The market in exchange-traded funds or trackers, traded on the ETFs segment of Euronext, requires a minimum of one LP to launch any product. These LP contracts are specific for each national market.

In the Bond market, LP contracts are based on the national governing rules which differ according to the method of quotation and the issuer, government or corporate. Furthermore, members can take up the option of being bid-only LPs.

Members considering becoming Liquidity Providers must be members of the Euronext marketplace in which they want to provide liquidity, and be authorized to trade in the capacity of either dealer or broker/dealer.

For Equities, NYSE Euronext has identified two distinct types of active Liquidity Provider activity, on the basis of which it has established two distinct types of LP.

Profile 1: "Corporate Broker" profile
In the first category are LPs whose activity is strongly related to that of mid and small caps. These LPs 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 listed. Due to the corporate finance nature of their activity, these LPs are classified as "Corporate Broker profile" LPs. LPs in this category have a "traditional" LP profile, and NYSE Euronext aims to have a maximum of two Corporate Broker LPs per equity.

Profile 2: "Dealer profile"
The second type of LP provides quotes on the more liquid equities. These LPs perform hedging and arbitrage activities and are therefore focused on blue chips and/or foreign shares (often equities that function as the underlying for options). These LPs are called "Dealer profile" LPs, after their style of trading (for own account and without any client involvement).

These LPs must respect a "List of eligible equities for LP activity", created by NYSE Euronext. Dealer profile LPs have adjusted requirements and specific trading fees.

*Liquidity contract: in France, the French Association of Investment Firms (AMAFI) offers standard liquidity contracts (tel: +33 (0)1 53 83 00 70).