What happens to market makers creating a market for a PubCo going out of business?
I hate to spread fearmongering given nothing is set in stone, but with FRC potentially being the next big bank to go into receivership, their stock has been heavily sold off and most investors won't touch it with a 10 ft pole.
With that said, obviously market makers have to provide liquidity to those investors selling their shares. On the flip side, maybe I'm wrong but I doubt many investors want to turn around and buy those same shares from the market makers, hence why the share price has tanked. My question is - what happens to those market makers providing liquidity if they can't turn around and re-sell those same shares to another investor? Are they just stuck holding the bag and have to take the L? Correct me if I'm wrong but this is the whole point of trades taking 2-3 days to settle so market makers can turn around and find a buyer before the trade closes, so they're never actually exposed to the stock.
I suppose this is why share prices decline and bid ask spreads widen and it's the risk of providing the service of market making. Sorry if this is a dumb question but interested to learn how market makers hedge this risk of re-selling shares on their books.
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