NYSE and Market Mechanics – Series 7 Exam

🏛️ NYSE and Market Mechanics – Series 7 Exam

Core Concepts You Must Know for Exam Day

The New York Stock Exchange (NYSE) is the world’s largest and most iconic securities exchange. For the Series 7 exam, you must understand how the NYSE operates, who the key participants are, and how trades are processed. Here’s a complete breakdown focused on exactly what you need to know.

🏛️ What Is the NYSE?

• Auction Market: Buyers and sellers compete directly for the best price.
• Centralized Trading: All trades occur through a single location (physical or electronic).
• Listed Securities: Companies must meet strict listing standards regarding size, profitability, and corporate governance.

👥 Key Players on the NYSE

📈 Designated Market Maker (DMM)

• Formerly known as specialists.
• Maintain fair and orderly markets for assigned stocks.
• Act as auctioneers: match buy and sell orders, or trade from their own inventory if needed.
• Can trade for their own account when necessary to maintain market stability.

🤝 Floor Brokers

• Execute orders for their firm’s clients.
• Compete with each other for the best price on the floor.

📋 Supplemental Liquidity Providers (SLPs)

• Off-floor firms that add liquidity to the market.
• Incentivized with rebates for quoting and trading.

📞 Floor Traders

• Independent members who trade for their own accounts, not on behalf of clients.

🔄 How Orders Are Processed

1. Client places an order through a broker-dealer.
2. Broker routes the order to the NYSE trading floor or electronic system.
3. Floor broker or electronic system seeks best price through auction or liquidity providers.
4. Order is executed and confirmed back to the client.

🧠 Important NYSE Rules and Features

• Priority: Price first, then time.
• Trade Reporting: Trades must be reported immediately to the consolidated tape.
• Circuit Breakers: Temporary halts are triggered if the market declines steeply (Level 1, 2, or 3 thresholds).
• Minimum Listing Standards: Financial strength, operating history, and a minimum share price are required.
• Open and Close Auctions: Large volumes are matched at market open and close to set official prices.

📋 Common Question Topics on the Series 7

• Role of the Designated Market Maker (DMM)
• Differences between auction and dealer markets
• Rules for order priority and execution reporting
• How circuit breakers work and what triggers them
• Listing requirements for NYSE companies

🚀 Ready to Master the NYSE and Pass the Series 7?

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