Market Makers

Other than ECNs, there are institutions that appear on level II that are called "market makers." You could think of market makers as professional traders that are employed by big institutions (like Goldman Sachs and Merrill Lynch). Market makers are out there to make money (just like we are) and they have special benefits bestowed upon them by the NASD (who regulates them), since they are supposed to bring volume to the market for NASDAQ stocks. Market makers trade for the firm's account (for example, buying shares at the bid and selling them at the ask to make the difference) or they can execute orders for the firm's clients, who could be small individual investors or large institutional investors like mutual funds. Even though every broker is supposed to try to obtain the "best" available price in the market for their clients, most online brokers send the majority of their orders to a given market maker that gives them a rebate for doing so (this is called "payment for order flow" and is a much debated topic because of the conflicts of interest that it creates). The broker's clients have no say in where their broker sends their order, a huge disadvantage that investors who trade using a direct-access trading system don't have.