Questions about NYSE

[trader_XX]

OK guys, so i'm studying for the Series 7, and i'm trying to understand the structure of the NYSE. I have a few questions:

1.) Can specialists make speculative trades for their own account? If so, is this is a conflict of interests?

2.) My book states that Rule 77 prohibits a member firm from offering to bet on the course of the market, buy or sell dividends, etc.

If I buy a seat on the exchange, aren't I considered a member? According to rule 77 i can't bet on the course of the market, but don't people buy seats so they can bet directly on the floor?

 

[MjEnglis]

Hey

Specialists aren't necassarily members of the Exchange. Usually, they are simply employed by a meber of the exchange say for instance Speer Leads & Kellogg.

Also, no, specialists can NOT speculate on the market and trade for their own profit. That is called front-running the market.

Their main role is to provide liquidity to the stocks that they are in charge of. They do this by buying up shares if there are more sellers than buyers so they balance the market and vica versa for everyone buying and few selling...the specialist will then sell the shares they previously purchased to balance the market.

That is what I learned from my trading internships.

Anyone else with more experience and knowlede (extremely likely) care to join in?

MjEnglis

 

[Avid_Consumer]

whatever their precise role is, they are abusing the market and not providing liquidity, actually quite opposite at times. i had at least 5 instances today between the NYSE and AMEX, of them dishonoring their quotes and backing off after I sent my order to hit them, and these are on slow trading symbols

it's outright theft.

 

[Maverick74]

Quote from Avid_Consumer:

whatever their precise role is, they are abusing the market and not providing liquidity, actually quite opposite at times. i had at least 5 instances today between the NYSE and AMEX, of them dishonoring their quotes and backing off after I sent my order to hit them, and these are on slow trading symbols

it's outright theft.

Hogwash. Specialists are not abusing the market and they do indeed provide liquidity. You are making the false assumption when you hit a bid or lift and offer that it's the specialist that is there. What if that order is mine? What if I pull it? Very seldom do the specialist bid or offer for stock all by themselves. They are usually with another order. In fact, most of the time they buy or sell now is to actually IMPROVE the market price.

I can't even count the amount of money I have made over the years on price improvements from the specialist. You just need to trade with them, not against them. Don't blame losses on the specialist. You would be amazed at how insignificant your orders are to them. They are more concerned about the 100k to 500k orders, not some mook trying to hit a bid for 300 shares.

 

[Maverick74]

Quote from MjEnglis:



Also, no, specialists can NOT speculate on the market and trade for their own profit. That is called front-running the market.

Their main role is to provide liquidity to the stocks that they are in charge of. They do this by buying up shares if there are more sellers than buyers so they balance the market and vica versa for everyone buying and few selling...the specialist will then sell the shares they previously purchased to balance the market.

That is what I learned from my trading internships.

Anyone else with more experience and knowlede (extremely likely) care to join in?

MjEnglis

Absolutely false. Specialists can and do speculate on their stocks. Why else would they make a market? Take a look at the 10k's of specialists firms and you will see where they mention the amount of revenue they take in from trading their own account. I knew many specialists in NY when I lived there and they actively traded their stocks. This is what allowed us to read the tape so well. We were trading with them. We knew when they were accumulating stock and we knew when they were offering it out.

 

[Maverick74]

BTW, just in case some of you guys didn't already know this, a specialist can only take a speculative long position on a downtick and can only take a speculative short position on an uptick. In other words, they cannot move the market. They are forced to trade against it. Therefore, they are not manipulating the market or front running it.

 

[Avid_Consumer]

Quote from Maverick74:

Hogwash. Specialists are not abusing the market and they do indeed provide liquidity. You are making the false assumption when you hit a bid or lift and offer that it's the specialist that is there. What if that order is mine? What if I pull it? Very seldom do the specialist bid or offer for stock all by themselves. They are usually with another order. In fact, most of the time they buy or sell now is to actually IMPROVE the market price.

I can't even count the amount of money I have made over the years on price improvements from the specialist. You just need to trade with them, not against them. Don't blame losses on the specialist. You would be amazed at how insignificant your orders are to them. They are more concerned about the 100k to 500k orders, not some mook trying to hit a bid for 300 shares.

i'll try and make this easy for you. specialist quotes size at a price. i smart route an order to him. he receives my order, either doesn't fill at all or doesn't fill completely, and backs off. whether that's you, him or elvis doesn't matter. he maintains a book and frequently dishonors his quote

these are very thin stocks that trade very few large orders if at all, in fact i'm on the big side for this tape. so what you're saying about order significance simply doesn't apply. easy on the assumptions

btw i'm not complaining about losses, i'm doing great.

 

[Maverick74]

Quote from Avid_Consumer:

i'll try and make this easy for you. specialist quotes size at a price. i smart route an order to him. he receives my order, either doesn't fill at all or doesn't fill completely, and backs off. whether that's you, him or elvis doesn't matter. he maintains a book and frequently dishonors his quote

these are very thin stocks that trade very few large orders if at all, so what you're saying about order significance simply doesn't apply. easy on the assumptions

btw i'm not complaining about losses, i'm doing great.

AC, you simply do not understand what you are talking about. If you hit a bid and the specialist is there, he can't pull his quote. DOT simply does not work like that. You are one paranoid dude.

Listen to me very carefully. The specialist does not care about your small order. He cares about the large trades. Your 300 or 500 or 2k shares is nothing to him.

AC, I use to trade very very thin stocks. I know them well. You would be surprised how many daytraders are in those thin stocks.

 

[Avid_Consumer]

Quote from Maverick74:

AC, you simply do not understand what you are talking about. If you hit a bid and the specialist is there, he can't pull his quote. DOT simply does not work like that. You are one paranoid dude.

Listen to me very carefully. The specialist does not care about your small order. He cares about the large trades. Your 300 or 500 or 2k shares is nothing to him.

AC, I use to trade very very thin stocks. I know them well. You would be surprised how many daytraders are in those thin stocks.

i don't know what to tell you mav. he pulls his quote on me, very frequently. and we're talking about more like 3k-6k share positions transacted in chunks of 1-1000, occasionally the whole thing or even a reversal not that it really bears relevance to what he quotes.

 

[Maverick74]

Quote from Avid_Consumer:

i don't know what to tell you mav. he pulls his quote on me, very frequently. and we're talking about more like 3k-6k share positions transacted in chunks of 1-1000, occasionally the whole thing or even a reversal not that it really bears relevance to what he quotes.

What's the ticker? If you see 500 shares on the bid and you nx the order, you have to get it. If you don't you can call down to the floor and get a governor's ruling. Every transaction is time stamped and traced. So at 10:15 am if he is on the bid for 500 shares and you nx him at 10:15, and you do not get filled. The floor governor can over rule the trade and force the specialist to fill you.

At the same time the specialist gets written up for this behavior which will lead to his firm getting fined and possibly losing their privileges to make markets. The specialist has to give the floor governor a legit reason for why you did not get filled such as someone came in before you and hit the bid first.

But I am telling you man, everything you do is recorded and you have 100% recourse. Just call your broker and ask them to call down to the floor and get a governor's ruling. We did this on a daily basis.