How do designated market makers create value for small-caps?

► Euronext allows small-cap firms to hire designated market makers (DMMs). ► DMMs guarantee a minimum liquidity supply for a lump sum annual fee. ► A DMM contract improves liquidity level and reduces liquidity risk. A DMM contract generates an average abnormal return of 3.5%. ► DMMs participate in more trades and incur a trading loss on high quoted-spread days.