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's the difference between a Nasdaq market maker and a NYSE specialist?

    What's the main difference between a specialist and a market maker? Not much. Both the New York Stock Exchange (NYSE) specialist ... Read Answer >>
  2. What exactly is being done when shares are bought and sold?

    Most stocks are traded on physical or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange ... Read Answer >>
  3. How do financial advisors execute trades?

    Understand how financial advisors normally execute an investor's trades. Learn about the different type of markets and exchanges ... Read Answer >>
  4. What kind of assets can be traded on a secondary market?

    Learn about the difference between the primary market and the secondary market, and what types of assets are traded on secondary ... Read Answer >>
  5. What are the differences between AMEX and Nasdaq?

    While similar in purpose, the American Stock Exchange (AMEX) and the National Association of Securities Dealers Automated ... Read Answer >>
  6. Which of the following equity trades would appear on the ticker ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
Related Articles
  1. Financial Advisors

    What the Ultra-Wealthy Want from Their Advisors

    When accessing products and solutions, the wealthy prefer using their relationship manager to a specialist, according to a new study.
  2. Retirement

    Electronic Trading Tutorial

    Learn about the systems that run the market. Topics include market makers, specialists, SuperDOT, ECNs, SOES, Level I, II, and III Access, and more.
  3. Retirement

    Electronic Trading: The Nasdaq Vs. The NYSE

    From a glance, the difference between the New York Stock Exchange (NYSE) and Nasdaq may not be marked. The NYSE lists household names like Coca-Cola, Wal-Mart, Citicorp, and General Electric, ...
  4. Options & Futures

    Getting To Know The Stock Exchanges

    Here are the answers to all the questions you have about stock exchanges but are too afraid to ask!
  5. Investing Basics

    Learn About the New York Stock Exchange

    The New York Stock Exchange (NYSE) is nicknamed the “Big Board,” and for good reason. It’s the largest, oldest and best-known stock exchange in the world.
  6. Active Trading Fundamentals

    Market Breadth: Introduction

    Each day at the posts of specialists at the New York Stock Exchange, and inside the networked computers of Nasdaq market makers, a battle between bulls and bears rages. Each side tries to pull ...
  7. Insurance

    HMOs: They're Back Under a New Name

    New style HMOs (aka ACOs) are cheaper and have shed some of the drawbacks of older versions. They're worth another look.
  8. Stock Analysis

    Are Clouds Finally Parting for Lumber Liquidators?

    After a year of uncertainty, Lumber Liquidators (NYSE: LL) finally has some clarity. The laminate flooring specialist reached a settlement with California's environmental regulators and agreed ...
  9. Investing Basics

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  10. Professionals

    Guide To Financial Certifications

    To find the right financial professional, you have to sift through an alphabet soup of certifications. Here’s a quick guide to six of the most common.
RELATED TERMS
  1. Specialist Short Sale Ratio

    A ratio used to determine the sentiment of specialists on the ...
  2. Specialist Firm

    The firms that hire the specialists to represent companies listed ...
  3. Negative Obligation

    An obligation of NYSE specialists to remain on the sidelines ...
  4. Limit Order Book

    A record of unexecuted limit orders maintained by the specialist. ...
  5. Affirmative Obligation

    An obligation of NYSE specialists to enter the market on a particular ...
  6. Asset Specialist

    A professional who is responsible for the management and disposition ...
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center