Stopping Stock

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

SHORT SALES

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