How the MMs handle panic like this?

They have to step up to the plate and buy to provide liquidity otherwise no one can sell.

 

by vigorously studying their legal obligations?

 

Wrong.

MMs are held to a minimum size on their bid, or their actual bid size, whichever is greater. After that, nothing prevents them from merely dropping their bid outside of the market, or just provide minimum required liquidity size at various prices all the way down to zero.

Osorico

 

yeah, by dropping bids in hundred lots, while their institutions short hand over fist.

Liquidity, yeah right.