How market makers trade:
Role of market makers
Market makers play an important role in the options market. Under ASX Market Rules they are required to provide quotes in certain option Series.
This requirement is to ensure liquidity in the market, so that traders are more easily able to trade into and out of an option position.
Market makers compete against one another while trading on their own account and at their own risk. They can be either individuals or firms.
Each market maker is assigned two or more stocks in which they must meet certain obligations. This involves quoting buy and sell prices for a certain number of series, and/or responding to requests from other market participants for prices.
Market Makers can choose to have the following obligations:
a) make a market on a continuous basis only; or
b) make a market in response to Quote Requests only; or
c) make a market both on a continuous basis and in response to quote requests.
The obligations of market makers are as follows:
Continuous Markets
Market Makers who choose to make a market on a continuous basis are obligated to provide Orders continuously in eighteen series per Underlying Security, encompassing three calls and three puts in any three of the next six expiry months. The criteria is based on the previous Trading Day's closing price of the Underlying Security and is selected from:
1. Those Series at-the-money
2. The next three in-the-money
3. The next three out-of-the-money
Each Order being for at least the Minimum Quantity and at or within the Maximum Spread requirements.
Quote Requests
Market makers who choose to make a market in response to Quote Requests must provide orders on request for all Series up to nine months maturity in a Class for the Minimum Quantity and at the Maximum Spread.
The maximum elapsed time before responding to a Quote Request or replacing Continuous Orders is 30 seconds.
The minimum duration of an order is 30 seconds. An order can be amended on condition that the Minimum Quantity and the Maximum Spread is maintained.
The required percentage for meeting Quote Requests only is 60%, and 50% where the Market Maker has elected to make a market both on a continuous basis and in response to Quote Requests.
Maximum Spreads
Each security over which exchange traded options are traded has a category designated by ASX. The category is allocated by reference to the liquidity of the security.
The category of the security determines:
the maximum spread (the difference between the bid and offer prices) the designated market maker(s) may quote when making a market
the minimum number of contracts for which the market maker must quote a price. The minimum volume requirement is ten contracts for Category 1 Classes and five contracts for Category 2 Classes.
PLEASE NOTE: There are NO Market Maker obligations in FLEX Classes.
Maximum spread and stock category 131KB (link)
How market makers trade (link)
http://www.asx.com.au/investor/options/trading_information/market_makers.htm