Can anyone idicate to me the rules that NYSE specialists are bound by? (i.e. selling on down ticks, buying on upticks, etc.) Can specialists hold, or at least delay the filling of orders? Any help or further information regarding how specialists work would be greatly appreciated. I have also read in other ET threads about trader's keeping specialist journals for specific stocks. Does anyone know what would be pertinent information to record, and how to decipher that information from T&S or the level II. Thanks to all responses.
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NYSE specialist rules...
- Thread starter rtrading
- Start date
Specialists are critical to the auction process. They perform a role that could be compared to that of an air traffic controller. Just as controllers maintain order among aircraft aloft, specialists maintain a fair and orderly market in the securities assigned to them.
They manage the auction process, providing a conduit of information -- electronically quoting and recording current bid and asked prices for the stocks assigned to them. This enables current price information to be transmitted worldwide, keeping all market participants informed of the total supply and demand for any particular NYSE-listed stock.
Each stock listed on the NYSE is allocated to a specialist, a broker who trades only in specific stocks at a designated location. All buying and selling of a stock occurs at that location, called a trading post. Buyers and sellers -represented by the floor brokers - meet openly at the trading post to find the best price for a security.
The people who gather around the specialist's post are referred to as the trading crowd. Bids to buy and offers to sell are made by open outcry to provide interested parties with an opportunity to participate, enhancing the competitive determination of prices. When the highest bid meets the lowest offer, a trade is executed.
To a large degree the specialist is responsible for maintaining the market's fairness, competitiveness and efficiency. Specifically, the specialist performs five vital functions: act as catalysts, and auctioneers, stabilize prices, provide capital.
Provide Capital Finally, if buy orders temporarily outpace sell orders in a stock - or if sell orders outpace buy orders - the specialist is required to use his firm's own capital to minimize the imbalance. This is done by buying or selling against the trend of the market, until a price is reached at which public supply and demand are once again in balance. In this role the specialist acts as a principal or dealer. Specialists participate in only about 10 percent of all shares traded. The rest of the time, public order meets public order, without specialist participation.
They manage the auction process, providing a conduit of information -- electronically quoting and recording current bid and asked prices for the stocks assigned to them. This enables current price information to be transmitted worldwide, keeping all market participants informed of the total supply and demand for any particular NYSE-listed stock.
Each stock listed on the NYSE is allocated to a specialist, a broker who trades only in specific stocks at a designated location. All buying and selling of a stock occurs at that location, called a trading post. Buyers and sellers -represented by the floor brokers - meet openly at the trading post to find the best price for a security.
The people who gather around the specialist's post are referred to as the trading crowd. Bids to buy and offers to sell are made by open outcry to provide interested parties with an opportunity to participate, enhancing the competitive determination of prices. When the highest bid meets the lowest offer, a trade is executed.
To a large degree the specialist is responsible for maintaining the market's fairness, competitiveness and efficiency. Specifically, the specialist performs five vital functions: act as catalysts, and auctioneers, stabilize prices, provide capital.
Provide Capital Finally, if buy orders temporarily outpace sell orders in a stock - or if sell orders outpace buy orders - the specialist is required to use his firm's own capital to minimize the imbalance. This is done by buying or selling against the trend of the market, until a price is reached at which public supply and demand are once again in balance. In this role the specialist acts as a principal or dealer. Specialists participate in only about 10 percent of all shares traded. The rest of the time, public order meets public order, without specialist participation.
Act as Agents One of the specialist's jobs is to execute orders for floor brokers in their assigned stocks. A floor broker may get an order from a customer who only wants to buy a stock at a price lower than the current market price - or sell it at a price higher than the current market price. In such cases, the broker may ask the specialist to hold the order and execute it if and when the price of the stock reaches the level specified by the customer. In this role the specialist acts as an agent for the broker.
Act as Catalysts Specialists serve as the contact point between brokers with buy and sell orders in the NYSE's two-way auction market. In this respect, the specialists act as catalysts, bringing buyers and sellers together, so that offers to buy can be matched with offer to sell.
Act as Auctioneers At the start of each trading day, the specialists establish a fair market price for each of their stocks. The specialists base that price on the supply and demand for the stock. Then, during the day, the specialists quote the current bids and offers in their stocks to other brokers.
Stabilize Prices Specialists are also called upon to maintain "orderly markets" in their assigned stocks. That is, they ensure that trading in the stocks moves smoothly throughout the day, with minimal fluctuation in price.
Act as Catalysts Specialists serve as the contact point between brokers with buy and sell orders in the NYSE's two-way auction market. In this respect, the specialists act as catalysts, bringing buyers and sellers together, so that offers to buy can be matched with offer to sell.
Act as Auctioneers At the start of each trading day, the specialists establish a fair market price for each of their stocks. The specialists base that price on the supply and demand for the stock. Then, during the day, the specialists quote the current bids and offers in their stocks to other brokers.
Stabilize Prices Specialists are also called upon to maintain "orderly markets" in their assigned stocks. That is, they ensure that trading in the stocks moves smoothly throughout the day, with minimal fluctuation in price.
freehouse, thanks for the nyse excerpt... it's a good technical definition of a specialist. Do you or anyone else know their specific trading rules or have insightful experiences trading with specialists? I have been trading financial markets for 5 years, and nasdaq for the last 2 years, but I'm just starting to trade nyse and am looking for information to help in the transition.
thanks again...
thanks again...
NYSE specialists do all what freehouse says. For that, I really think the NYSE is a better marketplace than Nasdaq with its terrible "dealer" model. Give my the LSE or Globex anytime.
ny specialist have to maintain a fair and orderly market first and foremost. they can NOT buy or sell ahead of a customer order. they can NOT hold up an order just for the hell of it. 90 seconds i believe is the max time they have to fill and order. in fast market situations they are alloted more time. sometimes a big order gets in front of your small order and you end up getting a worse price than you expect, its not the specialist trying to screw you.
There are several publications available that deal with the rules regarding the various systems. If you are considering the problem from a day trading angle you might look at Christopher Farrell's books. He writes a fair bit about the specialist system and the rules that govern them.
We spend quite a bit of time covering the Specialist rules (time priority, parity, initiating upticks and downticks, etc.). We are in the fortunate position to have several "ex-specialists" with the firm, and I was on the trading floor for years.....And I wish there was an updated, concise listing of rules that we could pass out easily.
The problem is that so much is covered under the umbrella of "fair and orderly" market that it does leave some gray areas.
For instance: They cannot initiate downticks or upticks...they can "participate but not initiate"....They must "accomodate" and can, at times, "particiapte" in customer orders.
Time priortiy is given unless you are "sized out" (when someone else can accomodate an entire order, but you cannot)....We all know the: "long market, long limit, short market, short limit" rules for openings and closings, etc.
We cover as much as we can in our training....but if you find a revised and concise coverage, I would love to see it.
The problem is that so much is covered under the umbrella of "fair and orderly" market that it does leave some gray areas.
For instance: They cannot initiate downticks or upticks...they can "participate but not initiate"....They must "accomodate" and can, at times, "particiapte" in customer orders.
Time priortiy is given unless you are "sized out" (when someone else can accomodate an entire order, but you cannot)....We all know the: "long market, long limit, short market, short limit" rules for openings and closings, etc.
We cover as much as we can in our training....but if you find a revised and concise coverage, I would love to see it.
Originally posted by rtrading
Can anyone idicate to me the rules that NYSE specialists are bound by? (i.e. selling on down ticks, buying on upticks, etc.) Can specialists hold, or at least delay the filling of orders? Any help or further information regarding how specialists work would be greatly appreciated. I have also read in other ET threads about trader's keeping specialist journals for specific stocks. Does anyone know what would be pertinent information to record, and how to decipher that information from T&S or the level II. Thanks to all responses.
Well first
They CAN"T sell on downticks ONLY upticks, and can ONLY buy on downticks. This means they are opposing order flow