Cash assets are more complicated to deal with for market makers, as an initial inventory has to be maintained to be able to short the asset. The other option is to be able to be naked short, in that case the market maker does not need an initial inventory and can be short without cost (as long as it gets flat at the end of the day). I do not know how registered market makers (MM) in equity exchange get an initial inventory OR can short their stocks without enduring too much cost. Can someone know what is the general practice? If MMs get a loan, does the exchange or the issuers lend the stocks for free to facilitate liquidity?
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