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 DMM 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 DMM must sell the customer 500 shares from their own account no higher than 40.20.



Brokers

Related Articles
  1. Investing

    Designated Market Maker

    A designated market maker maintains fair and orderly markets for an assigned set of listed firms and improves market liquidity.
  2. Financial Advisor

    What's Involved in Customer Service?

    Customer service is the part of a business tasked with enhancing customer satisfaction.
  3. Investing

    Negotiating the Bid

    A bid is an offer investors make to buy a security.
  4. Investing

    The Auction Method: How NYSE Stock Prices are Set

    The New York Stock Exchange (NYSE), sometimes referred to as “the big board,” is the oldest and largest stock exchange in the United States. NYSE is the place investors think of when ...
  5. Investing

    Explaining Buy Limit Orders

    A buy limit order allows traders and investors to specify the price that they are willing to pay for a security, such as a stock.
  6. Entrepreneurship & Small Business

    How Big Data Has Changed Marketing

    Big data has enabled marketers to enhance their customer engagement and customer retention strategies by providing insight into behavior and thoughts.
  7. Markets

    What is the Price-to-Sales Ratio?

    The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues.
  8. Trading

    What Does Bid And Asked Mean?

    Bid and asked is a two-way price quotation.
  9. Investing

    Explaining Value Stock

    Investors look for value stocks because they consider them to be underpriced based on the stock’s fundamentals.
  10. Investing

    What Does an Underwriter Do?

    In the investment world, an underwriter is a company that helps corporations or other issuing bodies distribute their securities.
Trading Center