WHAT IS Specialist Firm
A specialist firm is a firm that hires the specialists to represent companies listed on the New York Stock Exchange (NYSE). Specialists on the NYSE are the market makers who facilitate trade of a certain stock by buying and selling to and from investors and holding shares of that stock when necessary. Companies listed on the NYSE will interview employees of the specialist firms, seeking out suitable people to represent them by holding inventories of the companies' stocks.
BREAKING DOWN Specialist Firm
A specialist firm is a firm that employs a specific type of market maker that facilitates trades of specific stocks on the New York Stock Exchange (NYSE). Market makers also work on the Nasdaq, but since the Nasdaq is all electronically-traded and the NYSE is traded in person, specialists have more duties than do Nasdaq market makers, both in breadth and in volume.
Specialists employed by a specialist firm are interviewed by companies that list their stock on the NYSE to see which specialist will be able to facilitate trades and encourage maximum liquidity of their stock. When the company finds the specialist they feel will represent their company the best, they contract with the specialist firm to assign that specialist to represent their stock.
The number of specialist firms in operation has decreased over the last four decades. In the 1980s, there were more than 50 specialist firms, and most of these were family-owned businesses with long histories in New York financial markets and securities exchanges. By 2008 there were 10, due to decades of mergers and acquisitions and families exiting the industry or selling firms. Seven of these were stock specialist firms, while the other three specialized in exchange-traded funds (ETFs).
A specialist is a person who operates on the floor of the New York Stock Exchange (NYSE) to buy, sell and hold a specific stock. A specialist is a type of market maker that is physically present on the trading floor. The specialist must display their best bid and ask prices to allow for trades, and also step in with their own capital to buy stocks to hold. Their entire function is to keep the market for their stock as liquid as possible.
A specialist allows for the trading of a specific stock by serving four roles: auctioneer of stocks to investors, agent for investors in stock trades, catalyst to instigate trades from interested parties and principal who buys, holds and sells shares of stock with their own capital when necessary.