A:

Before we address this question, let's review what specialists do. Specialists are people on the trading floor of an exchange, such as the NYSE, who hold inventories of particular stocks. A specialist's job is not only to match buyers and sellers, but also to keep an inventory for him or herself that can be used to shift the market during a period of illiquidity.

The job of the specialist originated in 1872, when it was recognized that there was a need for a new system of continuous trading - before this, each stock had a set time during which it could be traded. Under the new system, brokers began to deal in a specific stock to remain at one location on the floor of the exchange. Eventually, the role of these brokers evolved into that of the 'specialist'.

It is the specialist's job to act in a way that benefits the public above all. Every specialist accomplishes this by filling the four vital roles of (1) auctioneer, (2) catalyst, (3) agent and (4) principal. Let's take a closer look at what a specialist does in fulfilling each of these roles:

  1. Auctioneer – Shows best bids and offers, becoming a 'market maker'.
  2. Catalyst – Keeps track of the interests of different buyers and sellers and continually updates them.
  3. Agent – Places electronically routed orders on behalf of clients. Floor brokers can leave an order with a specialist, freeing themselves up to take on other orders. Specialists then take on the responsibilities of a broker.
  4. Principal – Acts as the major party to a transaction. Since specialists are responsible for keeping the market in equilibrium, they are required to execute all customer orders ahead of their own.

To further enhance the competitiveness and performance of the NYSE, specialists were replaced by designated market makers (DMM) who manage both the physical and automated auction process. The NYSE DMMs are employed by:

  1. Brendan E. Cryan & Co.
  2. Citadel Securities LLC
  3. GTS Securities, LLC
  4. IMC Financial Markets
  5. Virtu Financial Capital Markets LLC

(For additional reading, see The Tale Of Two Exchanges: NYSE And Nasdaq and Getting To Know Stock Exchanges.

RELATED FAQS
  1. A _______ is a person on the trading floor of certain exchanges who holds an inventory ...

    The correct answer is d. A good example of an exchange using the specialist system is the NYSE. Each stock listed on the ... Read Answer >>
  2. 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 >>
  3. What kind of assets can be traded on a secondary market?

    Learn about the difference between the primary market and the secondary market, and what types of assets are traded on secondary ... Read Answer >>
  4. What does it mean when my broker says that shares are for auction?

    An auction market is one in which stock buyers enter competitive bids and stock sellers enter competitive offers at the same ... Read Answer >>
  5. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    Discover some of the primary advantages and disadvantages that exist for companies listed on the Nasdaq exchange rather than ... Read Answer >>
  6. Why are traders on the floor of the exchange?

    Before the advent of electronic trading platforms, the floor of the stock exchange was the location for market transactions ... Read Answer >>
Related Articles
  1. Personal Finance

    Handling Bad Advice From a Trusted Advisor

    You hire professionals to give you sound advice, but unfortunately that doesn't always happen.
  2. Personal Finance

    E-Marketing Specialist: Career Path & Qualifications

    Learn more about the duties and responsibilities performed by eMarketing specialists and common career paths this profession takes.
  3. Personal Finance

    The Role of a Life Insurance Super Specialist

    Life insurance super specialists are experts in finding policies regardless of mortality risk.
  4. Insights

    Learn About the New York Stock Exchange

    The New York Stock Exchange (NYSE) is nicknamed the “Big Board,” and for good reason. It’s the largest, oldest and best-known stock exchange in the world.
  5. Insights

    Getting to Know the Stock Exchanges

    Here are the answers to all the questions you have about stock exchanges but are too afraid to ask.
  6. Trading

    Electronic Trading Tutorial

    Learn about the systems that run the market. Topics include market makers, specialists, SuperDOT, ECNs, SOES, Level I, II, and III Access, and more.
  7. Trading

    High-Frequency Trading: A Primer

    An in depth look at how high-frequency trading works and who the players are.
  8. Trading

    The Global Electronic Stock Market

    The way trading is conducted is changing rapidly as exchanges turn toward automation.
RELATED TERMS
  1. Specialist

    A member of an exchange who acts as the market maker to facilitate ...
  2. Write Out

    A dual trade transaction enacted by a specialist in an individual ...
  3. Specialist Unit

    A group of firms or individuals that act as a market maker for ...
  4. Negative Obligation

    An obligation of NYSE specialists to remain on the sidelines ...
  5. Stopped Order

    A market order on the NYSE that is stopped from being executed ...
  6. Limit Order Information System - LOIS

    An electronic system used by specialists in the stock market. ...
Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an ...
  4. Salvage Value

    The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
Trading Center