The Securities Marketplace - Stopping Stock

A DMM, as a courtesy to a public customer, may guarantee an execution price while trying to find an improved or better price for the public customer. This is known as “stopping stock”

Example:

An order comes in to the crowd to purchase 500 ABC at the market when ABC is quoted as follows:

Bid

Ask

15 X 20

40

40.20

If the DMM stopped the customer, they would guarantee that the customer would pay no more than 40.20 for the 500 shares. The DMM would then try to obtain a better price for the customer and try to attract a seller by displaying a higher bid for that customer’s order. ABC may now be quoted after the specialist stopped the stock as:

Bid

Ask

5 X 20

40.10

40.20

In this case the DMM is trying to buy the stock for the customer 10 cents cheaper than the current best offer. If, however, a buyer comes into the crowd and purchases all of the stock that is offered at 40.20, the specialist must sell the customer 500 shares from their own account no higher than 40.20.

Short Sales


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