What is a Stopped Order
A stopped order is a market order on the New York Stock Exchange (NYSE) that is stopped from being executed by the specialist. A specialist is a member of a stock exchange who serves the role of market marker in order to coordinate and oversee the trading of a particular stock.
BREAKING DOWN Stopped Order
The stopped order occurs because of a request from a member firm to obtain a better price than that available. According to NYSE rules, once the order is stopped, it must be identified and the specialist must guarantee the market price at the time of the stop should they be unsuccessful in obtaining a better price.
Stopped order is a procedure on the NYSE in which the specialist is actively involved in the market as an agent representing a member firm. There are many different ways an order can be stopped under the guidelines of the NYSE.
Specialists are stationed at certain spots on the exchange floor called trading posts. The growing role of electronic trading has led to a decrease in the number of market specialists. In current market lingo, these specialists are now referred to as designated market makers (DMMs).
Stopped Order Example and the DMM’s Role
An example of a stopped order would be when a member firm is trying to buy company ABC at $10. If the current asking price is $10.25 and the specialist has agreed to stop the market order for the member firm, the order will be stopped and the specialist will post a bid for $10.00. Should the order not be filled for the member firm at the $10 price, and the market continues to advance, the specialist will be obliged to fill the order at the $10.25.
These stopped orders initiated by DMMs should not be mistaken with limit orders or stop orders placed by investors. The NYSE announced in November 2015 that it would stop accepting stop orders by investors in February 2016. This followed similar actions that had already been taken by the BATS and Nasdaq.
Stopped orders are just one example of the type of order a DMM would handle. Other types of orders that can be left with a DMM to be executed include buy and sell limit orders, stop limit orders, and all or none (AON) orders. On the other hand, a DMM cannot execute other types of orders, such as not held orders, fill or kill orders, market orders, and immediate or cancel orders.