A:

Before we address this question, let's review what specialists do. Specialists are people on the trading floor of an exchange, such as the NYSE, who hold inventories of particular stocks. A specialist's job is not only to match buyers and sellers, but also to keep an inventory for him or herself that can be used to shift the market during a period of illiquidity.

The job of the specialist originated in 1872, when it was recognized that there was a need for a new system of continuous trading - before this, each stock had a set time during which it could be traded. Under the new system, brokers began to deal in a specific stock to remain at one location on the floor of the exchange. Eventually, the role of these brokers evolved into that of the 'specialist'.

It is the specialist's job to act in a way that benefits the public above all. Every specialist accomplishes this by filling the four vital roles of (1) auctioneer, (2) catalyst, (3) agent and (4) principal. Let's take a closer look at what a specialist does in fulfilling each of these roles:

  1. Auctioneer – Shows best bids and offers, becoming a 'market maker'.
  2. Catalyst – Keeps track of the interests of different buyers and sellers and continually updates them.
  3. Agent – Places electronically routed orders on behalf of clients. Floor brokers can leave an order with a specialist, freeing themselves up to take on other orders. Specialists then take on the responsibilities of a broker.
  4. Principal – Acts as the major party to a transaction. Since specialists are responsible for keeping the market in equilibrium, they are required to execute all customer orders ahead of their own.

The specialists at the NYSE are employed by seven firms. Companies listed on certain exchanges will interview employees of the specialist firms, seeking out suitable people to represent them (by holding inventories of the companies' stocks). Here are the seven NYSE specialist firms:

  1. Bear Wagner Specialist LLC.
  2. Fleet Specialist, Inc.
  3. LaBranche & Co., LLC.
  4. Performance Specialist Group, LLC.
  5. Spear, Leeds & Kellogg Specialists LLC.
  6. SIG Specialists, Inc.
  7. Van der Moolen Specialists USA, LLC.

(For additional reading, see The Tale Of Two Exchanges: NYSE And Nasdaq and Getting To Know Stock Exchanges.

RELATED FAQS
  1. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What is the difference between shares outstanding and floating stock?

    Shares outstanding and floating stock are different measures of the shares of a particular stock. Shares outstanding is the ... Read Full Answer >>
  4. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    The primary advantages for a company of listing on the Nasdaq exchange are lower listing fees and lower minimum requirements ... Read Full Answer >>
  5. What is the difference between market risk premium and equity risk premium?

    The only meaningful difference between market-risk premium and equity-risk premium is scope. Both terms refer to the same ... Read Full Answer >>
  6. What is the difference between the QQQ ETF and other indexes?

    QQQ, previously QQQQ, is unlike indexes because it is an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index. The ... Read Full Answer >>
Related Articles
  1. Active Trading

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  2. Economics

    The History of Stock Exchanges

    Stock exchanges began with countries who sailed east in the 1600s, braving pirates and bad weather to find goods they could trade back home.
  3. Fundamental Analysis

    5 Predictions for the Chinese Stock Market in 2016

    Find out why market analysts are making these five ominous predictions about the Chinese stock market in 2016, and how it may impact the entire world.
  4. Economics

    How Interest Rates Affect The U.S. Markets

    When indicators rise more than 3% a year, the Fed raises the federal funds rate to keep inflation under control.
  5. Investing Basics

    Financial Markets: Capital vs. Money Markets

    Financial instruments with high liquidity and short maturities trade in money markets. Long-term assets trade in the capital markets.
  6. Economics

    The Ripple Effect: Interest Rates and the Stock Market

    Investors should observe the Federal Reserve’s funds rate, which is the cost banks pay to borrow from Federal Reserve banks.
  7. Investing Basics

    Calculating Floating Stock

    Floating stock is the number of shares a company has available for trade in the open market.
  8. Investing Basics

    How The Stock Market Works

    When you buy a stock, you buy a piece of a company.
  9. Investing Basics

    Financial Markets: Capital Vs. Money Markets

    Two commonly used components of the financial market are money markets and capital markets. Find out the similarities and differences between them.
  10. Stock Analysis

    Hedge Funds: Idiosyncratic Challenges to Fade

    With shifting monetary policy, we see renewed potential across many hedge fund strategies.
RELATED TERMS
  1. Futures Market

    An auction market in which participants buy and sell commodity/future ...
  2. Capital Markets

    Capital markets are markets for buying and selling equity and ...
  3. Equity Market

    The market in which shares are issued and traded, either through ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  5. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  6. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center