What role do these specialist firms play when there is buy/sell imbalance in a stock.thanks

Just to clarify, I thought that specialist firms are in the job of providing an orderly market,if they exist then whey do market sell or buy imbalances occur.I have noticed that market imbalance information news come around 3.40 on normal days,Could someone please provide some information, are there any good articles on this subject.

The specialist does have a role to moderate buy and sell imbalances in their stock-but a specialist does not have infinite capacity to absorb large orders.As a consequence, imbalances to buy or sell above a cetain level (25,000 shares?) are required to be disseminated to the market as a means to attract the other side and minimize price volatility. Smaller imbalances may be announced with some consultation with a floor official.Remember, the specialist is required to take the other side of temporary price imbalances- however, this does not have to be done at or near the last price. (There are limits on how far a specialist can move a stock without consultation with a florr official.) Attracting other market participants through announcements of imbalances reduces the amount that the price has to move based on these imbalances.Regards,Kelley

Market makers in general are dealers primarily and not investors. That means that they buy and sell securities for a fee providing liquidity in the market. They dont accumulate inventory (order imbalances negative or positive) in order to gain from their view for the market albeit they have priviledged information (limit order book flows). Thus they prefer to end their day with zero inventory and sleep better.On the other hand large position current or potential holders can notify the market maker about their intention to buy or sell a big quantity so he can build up the relevant inventory inbalance to match it with the anticipated order and the investor may gain a price improvement once the dealer can consider that the trade doesnt convey assymetric information. This can be done particularly in multiple dealer markets where where preference and internalisation arrangements do take place as well

Specialists do carry inventory from day to day. In a perfect world, they could clear their books every night. However, providing liquidty for the supply and demand imbalances requires carrying some positions.In the options market, market makers also carry inventory. It would be nice to close out all positions daily, but it is not feasible at a reasonable cost. So the net position is hedged out as best as possible using liquid instruments.

what is the limit order book that the specialist have, what positions are there in this ?

If an order comes to the floor, but cannot be immediately executable, it can either be represented by a broker in the crowd or passed on to the specialist for placement in the limit order book.If the limit price is close to the market price, the broker may remain in the crowd and represent the order. If it is not close to the market price, it is passed to the specialist for placement in the limit order book for later execution. Specialists cannot take discretionary or conditional orders. This process is now managed electronically, although not that many years ago, the specialist actually managed paper order slips.Knowing the extent of orders at various prices is advantageous. The market might be 23.50 bid, 23.52 offered, 10 x 10, but the specialist may know that there is 50,000 shares bid for at 23.48 and no big offers above the current offer. This provides some temporary support to the stock.

thanks, simply put,Limit order book := Book of Limit Orders, With the book the specialist is at an advantage at the various price levels and share amounts that are tobe traded.you mentioned in a previous post that the specialist may be able to clear his book on a daily basis,is this possible ?

QuoteOriginally posted by: dronayou mentioned in a previous post that the specialist may be able to clear his book on a daily basis,is this possible ?The specialist can clear his personal book, that is he can hold no net position. The limit order book is never cleared.