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Q: new york stock exchange ( No Answer,   4 Comments )
Subject: new york stock exchange
Category: Business and Money > Finance
Asked by: functionman-ga
List Price: $3.00
Posted: 02 Nov 2006 09:57 PST
Expires: 02 Dec 2006 09:57 PST
Question ID: 779454
i'm reading a book which describes why somtimes it is better to for a
broker to be on the trade flor in the NYSE rather than using the
SuperDOT system. as an example the book gives the following fictional
example, unfortunatly i can't understand what's going on there, please
explain in simple words and give all the reasons of every step for the
following story:

"A broker, one who is trusted and known by the specialist of a
particular stock that he is looking to purchase, approaches the
specialist's booth. the broker inquires as to how the specialist's
stock is performing. the specialist replies by saying that there are
currently 15,000 shares in his inventory and on his books and that the
selling price is $50 per share.
the broker expresses an interst in purchasing 50,000 shares and
inquires as to how much this will cost. the specialist responds with a
price 50?. the specialist posts this offer , a request to purchase
50,000 shares at 50?, on the market. this is a cinsiderable risk that
the specialist is taking; he is hoping that individuals will see that
the stock price is on the rise and will seize the opportunity to sell.
the specialist then hopes to buy back 35,000 shares at 50? and sell
them to the broker with whom he has been negotiating. the is, however,
the possibility that the broker will back out. if the specialist is
able to secure 35,000 shares and the broker does not purchase them,
the specialist is left out to dry.
another broker on the florr has the advantage of seeing this situation
unfold. he knows that the vroker's demand to buy is not totally
secured and thus is somewhat manufactured by the specialist. he
relizes that this is probably not the best time to sell."

thank you in advance.
There is no answer at this time.

Subject: Re: new york stock exchange
From: ubiquity-ga on 02 Nov 2006 19:12 PST
A specialist is someone who makes a market in a particular security. 
First and foremost, there job is to bring together buyers and sellers.
 If you want to buy 50 shares and someone wants to sell 50 shares, you
would both go to the specialist and he wold match you up.

Now suppose you want to sell 50 shares and there is nobody around to
buy (say it is a smallcap) but it has clear value; if nobody else is
around to buy, the specialist will make you an offer to buy, and then
sell it out of his inventory at a later date.

So, in this situation, a broker wnats to buy a stock, so he goes to
that stock's specialist and makes an offer.  The specialist attempts
to fill that offer by colicitng people to buy.  A specialist, by law,
can only trade on his own behalf if he cannot match up the broker with
someone selling shares.  If the broker wants to buy 50k and can only
get people willing to sell 35k at the given price, the broker can then
step in and fill the void.  Until a trade is executed one can back
out.  So it is possible that the specialist can end up holding shares
that are not worth what he paid for them.

He might have bought 35k shares at 50.5, when he knows it was only
worth 50, therefore he is out .5.

This same thing happens when you trade through your normal broker
dealer.  The firms brokerae desk has someone on the floor making the
trades you put through.  Howeverm this is changing as the exchanges
are becoming electronic.  If you book is more than two years old, the
scenario might not even be relevant.
Subject: Re: new york stock exchange
From: omnivorous-ga on 03 Nov 2006 03:34 PST
Functionman --

The specialists on the NYSE hold a unique monopolist's role that has
been controversial for decades.  Here's one article that explains it
well and that says trades often occur below published market prices by
specialists trading for THEIR OWN accounts:
Capitalism Magazine
"On the SEC Probe of NYSE "Specialist" Firms: Time Free the Stock
Market to Make it More Competitive" (Glassman, May 4, 2003)

Many believe that in the age of electronic trading, the specialist's
role is obsolete.

Suggested Google search strategy for more information:
NYSE specialist monopoly

Best regards,

Subject: Re: new york stock exchange
From: myoarin-ga on 03 Nov 2006 04:04 PST
All the above is correct in my opinion, but I think the question is
about the advantage that the broker mentioned in the last four lines
is supposed to have by overhearing the discussion.

Personally with some experience in the stock market, I don't
understand his assumption that it is not a good time to sell the stock
(with the assumption that this broker happens to have some of that
stock to offer).
Subject: Re: new york stock exchange
From: ubiquity-ga on 05 Nov 2006 15:22 PST
The advanatrge may be in beng able to get a sense of the demand for
the stock.  However, as the brokers transactions is going on
contemproaneously with this flowof information; there really is not
that much of an advantage.Especially these days as the exchanges are
half electronic.

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