1.3 US Government Structure: Regulators & Market Makers
The institutions that shape the market through policy, and the participants that move it through trading.
About this lecture
A tariff announcement, a government shutdown, a Treasury auction or a disappearing bid can affect your position. Who is behind each event, and how does their role differ?
In this lecture, Pratham maps two sides of the US market: the institutions that influence it through policy and the participants that move it through trading.
You'll learn about:
- Congress, spending bills, taxes and the debt ceiling
- Presidential decisions, tariffs, sanctions and appointments
- Treasury borrowing, bond supply and crisis responses
- The Fed's role and its relationship with elected officials
- The SEC and CFTC as market regulators
- How market makers provide liquidity and manage event risk
- Index funds, passive flows and the closing auction
The goal is to connect a headline to the institution or participant behind it—and understand the channel through which it can affect prices.
Educational content only. Not investment advice.
MochaLearn is a free A to Z course on understanding and trading US stocks and commodities, built for Indian traders.
Key takeaways
- Two sides move the market: institutions through policy — Congress, the President, the Treasury, the Fed, the SEC and the CFTC — and participants through trading — market makers, index funds and passive flows.
- Congress controls spending, taxes and the debt ceiling; the President decides tariffs, sanctions and appointments; the Treasury borrows and sets the supply of bonds.
- Market makers provide the liquidity you trade against and step back when event risk rises, which is how a bid can disappear.
- Passive flows from index funds concentrate in the closing auction.
Terms in this lecture
- 13F filingA 13F is the quarterly filing every US institutional manager with over $100 million must make, listing its stock…
- Bid-ask spreadThe bid-ask spread is the gap between the best price to sell (bid) and the best price to buy (ask). Buy at the ask…
- Closing auction (official close)The closing auction is the single matched trade at 1:30 AM IST, 2:30 AM in winter, that sets each US stock's official…
- Commodity ETFA commodity ETF tracks a commodity either by holding the metal or by holding futures and rolling them. Futures-based…
- Contango and backwardationContango is later futures months priced above nearer ones, the normal state when storage costs money; backwardation is…
- Contract rolloverContract rollover is closing an expiring futures month and opening the next to stay exposed. Front at $85.00, next at…
- Debt ceilingThe debt ceiling is the cap Congress sets on total US government borrowing. The Treasury borrows the gap between…
- Direct listing / SPACA direct listing puts existing shares on an exchange with no new shares and no underwriter, so the opening auction…
- Dual mandateThe dual mandate is the Fed's job as Congress wrote it: stable prices and maximum employment. The 2% inflation target…
- ETF creation and redemptionETF creation and redemption is how an ETF's price stays near the value of its holdings: large dealers swap baskets of…
- Federal ReserveThe Federal Reserve is the US central bank, built in 1913 after the 1907 bank runs were stopped by one banker. It sets…
- FINRAFINRA is the Financial Industry Regulatory Authority, US brokers policing themselves under the SEC. It writes broker…
- Government shutdownA US government shutdown happens when Congress has not passed spending by the fiscal year start on 1 October, so…
- Hard to borrowA hard-to-borrow stock is one where lenders have few shares left, so the borrow fee jumps and shorts can be recalled.…
- HedgingHedging is taking a second position that loses when your first one wins, to cut risk. Market makers hedge every fill…
- Index ETFAn index ETF holds every stock in a published index at the index weights, with no view and a small fee. It buys in the…
- Index rebalancingIndex rebalancing is when an index changes members or weights and every fund tracking it must trade the difference…
- Inverse ETFAn inverse ETF aims for the opposite of an index's daily move, so it rises when the index falls, and it resets daily…
- LiquidityLiquidity is how much you can trade without moving the price: a tight spread and deep size at each level. US…
- Long and short positionA long position profits when the price rises; a short position profits when it falls. On a contract on the price…