When a floor broker asks a specialist, “How’s PDQ?” The specialist replies “59.20 to 35; 6 by 11.” If the specialist trades to narrow the spread, what is the lowest bid that the specialist may enter?
a) 59.19
b) 59.36
c) 59.34
d) 59.21

The correct answer is d.
When the specialist gave the floor broker the quote of “59.20 to 35; 6 by 11,” the quote meant that the highest bid on the specialist’s book was 59.20 and the lowest ask on the book was 59.35 (the 6 by 11 means that there were 6 round lots at 59.20 and 11 round lots at 59.35). When a specialist trades for its own account to narrow the spread, it must bid at least .01 higher than the highest bid and ask at least .01 lower than the public orders on the book—the specialist may compete with public orders. The lowest that the specialist may ask in this case is 59.34. The effect of a specialist’s narrowing the spread is said to be “trading between the bid and the ask.”


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