Market Makers and Specialists

Broker Services

Brokers, when authorized by the client, may set up discretionary accounts. These accounts allow brokers to buy and sell securities for a client's account without contacting the client for each transaction. The authorized broker may determine the security traded, how much of it may be traded, the price and the time of transaction. Brokers may lend funds to customers who have margin accounts. With margin accounts, customers can buy additional securities with money borrowed from a broker.

Registered Representatives, Market Makers and Specialists

Registered Representatives

A registered representative is an individual who has passed the NASD's registration process and is therefore licensed to work in the securities industry. The process includes an examination that tests the candidate's knowledge of securities and markets. Further, the registration agreement requires that the candidate agree to follow the rules of the NASD. Registered representatives sell to the public; they do not work on exchange floors.

Market Makers

Market makers are firms that maintain a firm bid and offer price in a given security by standing ready to buy or sell at publicly-quoted prices. The Nasdaq is a decentralized network of competitive market makers. Market makers process orders for their own customers, and for other NASD broker/dealers; all NASD securities are traded through market maker firms. Market makers also will buy securities from issuers for resale to customers or other broker/dealers. About 10 percent of NASD firms are Market Makers; a broker/dealer may become a Market Maker if the firm meets capitalization standards set down by the NASD.

Specialists

Specialists keep markets for securities orderly and continuous. This means they must buy when there are others selling without buyers, and they must sell when others are buying without sellers. They must maintain their own inventories of securities that are large enough for sizable trades. Specialists both buy and sell out of these inventories and mediate between other customers. Specialists work on the exchanges where they hold seats. Among their duties is buying and selling odd-lots (trades of less than 100 shares) for exchange members.

To trade a security, a specialist must be able to keep a position on it with at least 5,000 shares. Specialists, like others, who buy and sell for the public, are subject to rules and regulations. Specialists often choose to keep inventories in multiple securities, often in more than one market sector. There are many investment methods that seasoned investment professionals use to take advantage of opportunities during bull or bear markets. Methods such as dollar-cost averaging, selling short, and diversification exist. Understanding well-founded strategies will help you to improve your chances for superior performance in either market environment. However, there is no surefire way to always succeed. The best weapon you can employ is education.

The tickets sent to your brokerage firm and the brokerage firm of the person who bought or sold the stock from you is entered into a computer. Over the next few hours, the two trades are matched to make sure they agree. If they do not agree, the brokers meet again to settle any differences. This will not affect your fill. Once agreement is ensured, the settlement process begins. Settlement of the trade generally occurs three business days from the actual trade date. Upon settlement the brokerage firms exchange (usually electronically) the stock certificates and the money for the stock.

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