Electronic Trading: The Role of a Specialist
  1. Electronic Trading: Introduction
  2. Electronic Trading: The Nasdaq Vs. The NYSE
  3. Electronic Trading: The Role of a Specialist
  4. Electronic Trading: The Role of a Market Maker
  5. Electronic Trading: SuperDOT
  6. Electronic Trading: Electronic Communications Networks (ECNs)
  7. Electronic Trading: Small Order Execution System (SOES)
  8. Electronic Trading: Level I, II and III Access
  9. Electronic Trading: Conclusion

Electronic Trading: The Role of a Specialist


The NYSE facilitates trading through a human being who is known as the specialist. Each stock listed on the NYSE is allocated to a specialist and all the buying and selling of a stock occurs at the location of this person, known as "the trading post." Buyers and sellers represented by a floor trader will meet at the trading post to learn about the best current bid and ask price for a security. These bid and ask offers are called out loud and indicate the current prices to any interested party. A trade will be executed when the bid and ask orders meet. (For more insight, see Why The Bid-Ask Spread Is So Important.)

The specialist doesn't only match up buyers and sellers. Many specialists are forced to hold an inventory of shares themselves to minimize the imbalance of buy and sell orders. The specialist does this until an equilibrium price is reached, which is when demand and supply are very close. Buying an inventory of stocks is not a common occurrence. In fact, it is estimated that a specialist will be in on only one out of every 10-15 trades.

Another duty that a specialist attends to occurs if a customer's order is priced at a level higher than the lowest ask, or lower than the best bid price (known as a stop order). The specialist will then hold the order and execute it if and when the price of the stock reaches the level specified by the customer. (For related reading, check out Understanding Order Execution and The Basics Of Order Entry.)

A final responsibility of the specialist is to find a fair price for each of the stocks that he or she is responsible for at the beginning of every trading day. This fair price is based on the current supply and demand of the stock. The NYSE opens for trading at 9:30am, but if the specialist can't find a fair price, he or she may delay the opening of trading on a stock until that fair price is found.

It is the specialist's job to act in a way that benefits the public. Because specialists are responsible for keeping the market in equilibrium, they are required to execute all customer orders ahead of their own.

Electronic Trading: The Role of a Market Maker

  1. Electronic Trading: Introduction
  2. Electronic Trading: The Nasdaq Vs. The NYSE
  3. Electronic Trading: The Role of a Specialist
  4. Electronic Trading: The Role of a Market Maker
  5. Electronic Trading: SuperDOT
  6. Electronic Trading: Electronic Communications Networks (ECNs)
  7. Electronic Trading: Small Order Execution System (SOES)
  8. Electronic Trading: Level I, II and III Access
  9. Electronic Trading: Conclusion
RELATED TERMS
  1. Specialist Short Sale Ratio

    A ratio used to determine the sentiment of specialists on the ...
  2. Stopped Order

    A market order on the NYSE that is stopped from being executed ...
  3. Affirmative Obligation

    An obligation of NYSE specialists to enter the market on a particular ...
  4. Market Performance Committee

    A committee, consisting of members and allied members of the ...
  5. Limit Order Book

    A record of unexecuted limit orders maintained by the specialist. ...
  6. Limit Order Information System - LOIS

    An electronic system used by specialists in the stock market. ...
RELATED FAQS
  1. Who employs the specialists at New York Stock Exchange (NYSE)? Do they work for themselves, ...

    Before we address this question, let's review what specialists do. Specialists are people on the trading floor of an exchange, ... Read Answer >>
  2. What's the difference between a Nasdaq market maker and a NYSE specialist?

    What's the main difference between a specialist and a market maker? Not much. Both the New York Stock Exchange (NYSE) specialist ... Read Answer >>
  3. When a floor broker asks a specialist, “How’s PDQ?” ...

    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 ... Read Answer >>
  4. What's the average salary of a human resources (HR) specialist?

    Discover the national average salary for a human resources (HR) specialist in the as well as for regions throughout the United ... Read Answer >>
  5. What do the bid and ask prices represent on a stock quote?

    Learn what the bid and ask prices mean in a stock quote. Find out what represents supply and demand in the stock market and ... Read Answer >>
  6. What are the determinants of a stock's bid-ask spread?

    Stock exchanges are set up to assist brokers and other specialists in coordinating bid and ask prices. The bid price is the ... Read Answer >>
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