Series 62

AAA

Trading Securities - The Specialist / DMM Acting As A Principal

In the absence of public orders the specialist / DMM is required to provide liquidity and price improvement for the stocks in which they specialize. Specialists/ DMMs are required to trade against the market and may not trade for their own account at prices that would compete with public orders.

Example:

If the public market for XYZ is quoted as follows:

Bid Offer
10 X 10 20.45 20.55

There is a 20.45 bid for 1000 shares and 1000 shares offered at 20.55

If a public sell order came in to sell the stock, the specialist could not purchase the stock for their own account at 20.45 because that would be competing with the public. The specialist could purchase the stock for their own account at 20.50 because that would be improving the price that the seller would be receiving. This is known as price improvement. Alternatively, if a public buy order came in, the specialist / DMM could not sell the stock from their own account at 20.55, because that would also be competing with the public. They could sell the stock to the customer at 20.50 because, once again, that would be providing price improvement for the order.

The Specialist / DMM Acting As An Agent
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