The Participants

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

The investor places an order with a broker. The brokerage firm for which the broker works, and which owns a seat on the exchange, contacts its commission broker, who is on the floor of the exchange, to execute the order. When the firm's commission brokers are overloaded and have too many orders to handle, they will use the services of floor brokers, who are independent members of the exchange (and own seats), to execute orders.

The specialist is central to the trading process. 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 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.

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