What is one obligation of GEMMs?

The obligation of GEMMs (Gilt-Edged Market Makers) to make effective two-way prices to customers on demand is crucial for ensuring liquidity in the government securities market. This role allows them to maintain the efficiency of market operations by continuously providing both buy and sell quotes for gilt securities.

When GEMMs quote two-way prices, they are giving investors the ability to enter and exit positions with relative ease, facilitating trading and contributing to market stability. By being ready to quote prices at which they are willing to buy and sell, GEMMs help ensure there is always a market for these securities, which maintains investor confidence.

In this context, the other options do not accurately reflect the core obligations of GEMMs. Providing preferential interest rates is not a requirement linked to their role as market makers, and engaging solely in speculative trading does not align with the responsibility of facilitating liquidity. Additionally, limiting participation in gilt issuances contradicts their purpose of being active participants in the market, as GEMMs are expected to engage fully in government securities trading. Therefore, making effective two-way prices is foundational to the responsibilities of GEMMs within the financial markets.