Trading Securities - The Specialist / DMM Acting As An Agent

The specialist / DMM is also required to execute orders that have been left with them. Orders that have been left with the DMM for execution are said to be “left or dropped on the book”. The DMM is required to maintain a book of public orders and to execute them when market conditions permit. The types of orders that may be left with the specialist are:

  • Buy and Sell limit orders
  • Stop orders
  • Stop Limit orders
  • Both day and GTC orders
  • AON orders

The DMM will execute the orders if and when they are able to and will send a commission bill to the member who left the order with them for execution. This is known as a specialist bill and is usually only a cent or two per share. The DMM is also required to quote the best market for the security to any party that asks. The best or inside market is comprised of the highest bid and lowest offer. This is made up from bids and offers contained in the DMM’s book and in the trading crowd. The inside market is also the market that is displayed to broker dealers and agents on their quote system.

When quoting the inside market the DMM will add all of the shares bid for at the highest price and all of the shares offered at the lowest price to determine the size of the market. There are certain types of orders that are not included when determining the inside market they are:

  • Stop orders
  • All or None orders

A DMM may not accept the following types of orders:

  • Market orders
  • Immediately executable limit orders
  • Not held orders
  • Immediate or cancel orders
  • Fill or kill orders

Market orders and immediately executable limit orders are filled as soon as they reach the crowd so there is nothing to leave with the specialist. In the case of a not held order, once a floor broker is given discretion as to time and price, they may not give it to another party.

A DMM’s book may look something like the following example:

Buy XYZ Sell
5 Goldman 10 JPM 20
20.05
20.10

1 Prudential

5 Fidelity

20.15 2 Morgan
5 Merrill Stp 20.20

The inside market for XYZ based on the specialist’s '00 V book would be:

Bid Ask
15 X 6 20.00 20.10

Buyers are bidding for 1500 shares and sellers are offering 600 shares of XYZ.

Note: The buy stop entered over the market by Merrill is not contained in the quote, as the order has not been elected.

series 62 sample questions

Crossing Stock
Related Articles
  1. Professionals

    Series 99

    FINRA/NASAA Series 99 Exam Guide
  2. Professionals

    Series 24

    FINRA/NASAA Series 24 Exam Guide
  3. Professionals

    Becoming A Registered Investment Advisor

    To become a registered investment advisor requires specific licensing, qualifications and regulations, but the greater freedom may be worth it.
  4. FA

    The Basics of The Series 79 Exam

    Passing the Series 79 exam is usually necessary for anyone who wants to work in investment banking.
  5. Your Clients

    Events in 2016 That'll Alter Your Retirement Plans

    Retirement savers who are trying to see what lies ahead can expect these changes affecting their retirement plans in 2016.
  6. Term

    What is the Series 66?

    The Series 66 exam is one of two tests required to register as both a securities agent and an investment advisor.
  7. Your Practice

    How Likely is a New Fiduciary Rule in 2016?

    New fiduciary standards for advisors working with retirement accounts are on the horizon. Will they become reality in 2016?
  8. Professionals

    Breaking Down Financial Securities Licenses

    Find out which exam you need to begin your career as an investment professional.
  9. Brokers

    Duck These Illegal Sales Tactics Used By Brokers

    Many unscrupulous brokers employ illegal swindling tactics to sell bad securities. Here are sales strategies that should indicate red flags to investors.
  10. Professionals

    Private Banker: Career Path & Qualifications

    Discover what kind of work private bankers do, and learn more about how you can develop the experience and qualifications required to work in the field.
RELATED TERMS
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  4. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  5. Series 79

    A examination to ensure a candidate is qualified to become a ...
  6. Research Analyst

    A person who prepares investigative reports on equity securities. ...
RELATED FAQS
  1. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ... Read Full Answer >>
  2. How can I find out if my employer is a member of FINRA?

    To find out if your employer is a member of the Financial Industry Regulatory Authority or FINRA (previously the National ... Read Full Answer >>
  3. I have a CFA designation. Do I qualify for any exemptions from FINRA licensing exams?

    Unfortunately, a CFA charter does not qualify you for any FINRA exam exemptions. Read Full Answer >>
  4. Am I qualified once I complete my FINRA certification exam?

    Even if you have completed your Financial Industry Regulatory Authority or FINRA (previously the National Association of ... Read Full Answer >>
  5. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  6. How are variable annuities regulated?

    The sale of a variable annuity is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. 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 ...
  5. 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 ...
Trading Center