The Participants

When an investor instructs a broker to buy or sell securities, a number of players must act to consummate the trade. We start our discussion of the mechanics of exchange trading with a brief description of the potential parties to a trade.

The investor places an order with a broker. The brokerage firm owning a seat on the exchange contacts its commission broker, who is on the floor of the exchange, to execute the

76 PART I Introduction order. Floor brokers are independent members of the exchange who own their own seats and handle work for commission brokers when those brokers have too many orders to handle.

The specialist is central to the trading process. Specialists maintain a market in one or more listed securities. All trading in a given stock takes place at one location on the floor of the exchange called the specialist's post. At the specialist's post is a computer monitor, called the Display Book, that presents all the current offers from interested traders to buy or sell shares at various prices as well as the number of shares these quotes are good for. The specialist manages the trading in the stock. The market-making responsibility for each stock is assigned by the NYSE to one specialist firm. There is only one specialist per stock, but most firms will have responsibility for trading in several stocks. The specialist firm also may act as a dealer in the stock, trading for its own account. We will examine the role of the specialist in more detail shortly.

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