NYSE specialist and a floor broker

Discussion in 'Order Execution' started by function, Nov 2, 2006.

  1. function

    function Guest

    well, this is kind of long...

    i'm reading a book about order execution. in this book the authour describes why brokers are still eager to be present at the trade floor instead of using the SuperDOT, in order to make his point he gives a fictional example, unfortunatly i can't understand what's going on there, can
    please someone explain in simple words?

    heres the 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¨û. the specialist posts this offer , a request to purchase 50,000 shares at 50¨û, 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¨û 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.
    in this perticular scenario, the specialist is attempting to control the market and drive it upward. he sees an opportunity to "create" a demand to buy a stock-and therby increase the trading volume-and is willing to do so, even if there is a substential risk involved. the specialist trusted the broker and was willing to try to manipulate the market so that it would benefit the both of them.

    what is the specialists' benefit?
    what's the broker's?
    y the broker that saw this situation unfolds decided not to sell?

    (i know this book written before the decimalization but the principles are the same)

    thank u in advance.

    thank you in advance.