A market maker is a legal entity or individual that provides liquidity in financial markets by continuously providing bid and ask prices for financial instruments. This activity qualifies as the provision of financial services and is subject to licensing in almost all jurisdictions. The regulatory approach depends on the geography, instruments used, and the nature of the clients.

Europe

European Union
In EU countries, market makers are regulated as investment firms under MiFID II (Markets in Financial Instruments Directive II). This activity is considered proprietary trading and requires an investment firm license. Key requirements include:
· Obtaining a license in one of the EU countries through a national regulator (BaFin, AMF, CNMV, etc.)
· Minimum authorized capital: EUR 750,000 for proprietary trading

· Development and implementation of internal control systems, KYC/AML procedures, and risk management
· Regular regulatory and financial reporting
· Compliance with transparency and order execution requirements
With a license, a "passporting" mechanism can be used, allowing the firm to operate in all EU countries without re-licensing.

United Kingdom
After leaving the EU, the United Kingdom retained MiFID-like regulations. Market makers require an investment firm license from the Financial Conduct Authority (FCA).
Financial and operational requirements are comparable to those in Europe. Compliance with standards on algorithmic trading, price transparency, and market risk management is mandatory.

Switzerland
Although Switzerland is not part of the EU, regulation is also strict. Financial supervision is carried out by FINMA. Since 2020, the FinIA law has been in effect, requiring market makers to have the status of a "licensed securities house."
Minimum requirements include capital of CHF 1 million, internal controls, audit, AML compliance, and accounting policies.

Asia
Singapore
A market maker must obtain a Capital Markets Services (CMS) license issued by the Monetary Authority of Singapore (MAS) if they trade securities or derivatives on their own behalf.
The minimum capital required depends on the type of transaction and ranges from 500,000 to 5 million Singapore dollars. Additionally, a full compliance function, audit, and verified management qualifications are required.
Singapore also supports algorithmic trading and is actively developing a legal framework for decentralized trading systems.

Hong Kong
In Hong Kong, a market maker requires a Type 1 license from the Securities and Futures Commission (SFC). If an automated trading system is used, a Type 7 license is also required.
Authorized capital is required: from 3 million Hong Kong dollars. Liquidity management, transparency, recordkeeping, and cybersecurity requirements must be met.
A local director and office are often required, as well as an annual audit.


South Korea
Regulation is carried out through the Financial Services Commission (FSC) and the Korea Exchange (KRX). Market-making requires obtaining a broker-dealer license and entering into a separate agreement with the KRX.
South Korea imposes extremely strict requirements on IT infrastructure, data protection, and algorithmic trading. Annual audits, participation in a compensation system, and high minimum reserves (up to several billion Korean won) are also mandatory.

Offshore Jurisdictions

Cayman Islands
Here, market making is regulated under the Investment Instruments Trading Act. If the activity is directed at external clients, a Securities Investment Business (SIB) license issued by CIMA is required.
Capital requirements start at $100,000. The Cayman Islands are often used for hedge funds and algorithmic trading as part of a holding structure.

BVI (British Virgin Islands)
The FSC requires a license for "dealing in investments." This jurisdiction is popular due to its simplified compliance, tax neutrality, and fast licensing.
Capital requirements start at $50,000. A simplified reporting regime allows for faster project launches, especially in the digital asset segment.


Malaysia (Labuan)
The Labuan Financial Center offers the Labuan Securities License. This jurisdiction combines low taxation, access to Asian markets, and an acceptable reputation.
Licensing requires a local office, at least one resident director, and capital of at least USD 100,000. Suitable for professional participants working with institutional clients.

General conclusion when choosing a jurisdiction
For trading on public markets, especially within MTFs or exchanges, EU, UK, or Singapore jurisdictions are preferable. This provides legal protection, prestige, and reliable access to liquidity.
For algorithmic strategies, including those in the crypto space, it's reasonable to consider a combined structure: a parent company in the British Virgin Islands or Cayman Islands and a subsidiary licensed by the CMS in Singapore or the FCA in the UK.
For startups with limited resources, the British Virgin Islands or Labuan may be suitable, especially in the early stages of attracting liquidity and fine-tuning algorithms.