i have been trading nasdaq stocks for a while and have recently switched over to new york stock exchange...was wondering if anyone knows of any publications on how specialists work and how to view trading from their perspective so i can understand it????
specialists
- Thread starter larrylivingston
- Start date
This may not.
Specialist A market professional who manages the two-way auction market trading in the specific securities he or she has been assigned. He or she works for a specialist firm, which is an independent company in the business of trading listed securities. (Click here for a list of specialist firms at the NYSE.) Specialists perform four critical roles: auctioneer, agent, catalyst, and principal.
Specialist as Auctioneer
As auctioneer, the specialist continually shows the best bids and offers throughout the trading day. These quotes are disseminated electronically through the NYSE quote and other market-data systems that transmit the information instantly worldwide. The specialist maintains order in the crowd and interacts with other agents representing customers. Specialists make sure all marketable orders are executed regardless of their size.
Specialist as Agent
As agent, the specialist accepts limit orders from investors, either electronically or via a broker, and executes trades on their behalf when the share price reaches the investor's limit. As agent, a specialist assumes the same fiduciary responsibility as a broker.
Specialist as Catalyst
As catalyst, the specialist is the contact point between brokers with buy orders and brokers with sell orders. Specialists bring together buyers and sellers when necessary. For example, if a buy or sell order can't be matched with other orders, the specialist will alert investors who were recently active in the stock to see if they can be brought into that transaction.
Specialist as Principal
As principal, the specialist must buy and sell stock against the market trend to cushion temporary imbalances and avoid unreasonable price variationsâcommitting capital to add liquidity when it is needed. If buy orders temporarily outpace sell orders in a specialist's assigned stocks - or if sell orders outpace buy orders - the specialist is required to use their 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. Specialists, however, cannot trade ahead of public orders. The NYSE operates under strict public-order priority that always puts the customer first.
Specialist A market professional who manages the two-way auction market trading in the specific securities he or she has been assigned. He or she works for a specialist firm, which is an independent company in the business of trading listed securities. (Click here for a list of specialist firms at the NYSE.) Specialists perform four critical roles: auctioneer, agent, catalyst, and principal.
Specialist as Auctioneer
As auctioneer, the specialist continually shows the best bids and offers throughout the trading day. These quotes are disseminated electronically through the NYSE quote and other market-data systems that transmit the information instantly worldwide. The specialist maintains order in the crowd and interacts with other agents representing customers. Specialists make sure all marketable orders are executed regardless of their size.
Specialist as Agent
As agent, the specialist accepts limit orders from investors, either electronically or via a broker, and executes trades on their behalf when the share price reaches the investor's limit. As agent, a specialist assumes the same fiduciary responsibility as a broker.
Specialist as Catalyst
As catalyst, the specialist is the contact point between brokers with buy orders and brokers with sell orders. Specialists bring together buyers and sellers when necessary. For example, if a buy or sell order can't be matched with other orders, the specialist will alert investors who were recently active in the stock to see if they can be brought into that transaction.
Specialist as Principal
As principal, the specialist must buy and sell stock against the market trend to cushion temporary imbalances and avoid unreasonable price variationsâcommitting capital to add liquidity when it is needed. If buy orders temporarily outpace sell orders in a specialist's assigned stocks - or if sell orders outpace buy orders - the specialist is required to use their 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. Specialists, however, cannot trade ahead of public orders. The NYSE operates under strict public-order priority that always puts the customer first.
There is an NYSE working paper #93-01 "Systems and Trading Procedures" which was helpful to me.
I think it was published in 1993 so it is dated but unlike the nasdaq the NYSE hasn't changed much. It helped me understand a few things that were still fuzzy to me like how blocks are positioned "upstairs", the entire crossing process and how it relates to "clean up prices, how program trades go off (they use dedicated lines so "the specialist knows the mnemonics associated with these lines and can therefore identify program orders)", etc.
That handbook in the linked post above however covers your question as well as anything I have ever seen.
If you want the working paper after reading that, PM me and I'll send it to you in a PDF. I'm not sure if it's on the NYSE website, I think I got mine of the NYU University database.
I think it was published in 1993 so it is dated but unlike the nasdaq the NYSE hasn't changed much. It helped me understand a few things that were still fuzzy to me like how blocks are positioned "upstairs", the entire crossing process and how it relates to "clean up prices, how program trades go off (they use dedicated lines so "the specialist knows the mnemonics associated with these lines and can therefore identify program orders)", etc.
That handbook in the linked post above however covers your question as well as anything I have ever seen.
If you want the working paper after reading that, PM me and I'll send it to you in a PDF. I'm not sure if it's on the NYSE website, I think I got mine of the NYU University database.
Chad,
Thanks for a great explanation.
I was wondering though, how come specialist would show a bid / offer like
200 35.10 X 200 35.20
and then would generate 5 prints of 1000 shares at the offer withough changing the offer's size or price. If he had 5000 shares for sale at 35.20 and only showed 200 shares - isn't he in violation of his obligations as auctioneer.
Similarly with the same quote as above he may start printing multiple trades at 35.19 without displaying 35.19 as the best offer. How come they are allowed to do that if they are obligated to show the best price/size.
Thanks
There are several things that can happen.
1. A broker in the crowd may not want his order shown.
2. The specialist is trying to make an orderly market.
3. The stock is extremely busy.
Those are just a few things that can happen. But in general they try their best to show the order. If your order isn't shown in a timely fashion you should call your B/D to call their DOT Liaison up and tell them to call DOT Services so that the order can be shown. The problem with that is it takes a while with all those phone calls.
Also for your other question regarding prints. That is what price discovery is. Other market orders may be coming in and they are matching the orders. Its very common in the OTC to see prints either at the bid or offer. In the listed world its not like that, price discovery is the reason for going to NY because you'll get the best price. That's is why ECN's have trouble competing in stocks that's aren't super active on the listed market place.
Jeff--
OES
HAHA
Trading! What else?
I joined this site a long time ago and I really don't remember exactly what it was then or why I joined. I seem to remember Baron selling some sort of LII reading course. I also remember that there was a lot of talk and information about hardware on the site at that time. That was when I was building my first trading station. My screen name was obviously different then, as at the time I had never heard of ECHO and was trading retail with MB Trading. When my firm and ECHO joined up and I started posting, I sent Baron an email asking him to change the name that I had just reregistered with and update the info. He checked his records and put in the correct date.