General Securities Sales Supervisor (Series10) Practice Exam

When a floor trader holds a market-not held order and the Specialist states "100 shares are stopped at $21.25," what does it mean?

1. The Specialist guarantees a price of $21.25 for a short duration

2. The Specialist prohibits the floor trader from buying below $21.25

3. The Specialist stops the floor trader from buying above $21.25

4. The Specialist halts all trading in the stock

The correct answer is: The Specialist guarantees a price of $21.25 for a short duration

When the Specialist states "100 shares are stopped at $21.25," this indicates that a temporary guarantee is provided for the price of those shares. Specifically, a market-not held order gives the floor trader flexibility on when to execute the trade, but it is subject to the Specialist's quote. By stopping the order at $21.25, the Specialist commits to ensuring that the floor trader can buy or sell up to that quantity at that price, at least for a short duration. This means that should the market price reach $21.25, these shares can be executed at that price, providing a level of assurance to the trader about the pricing under current market conditions. This is particularly important in volatile markets, as the stopped price helps protect against rapid fluctuations. Understanding this context clarifies how market orders and price guarantees work, particularly in the context of trading practices. The other options describe misunderstandings of the stop mechanism; in this case, it is not about prohibiting prices above or below the stop price or halting trading entirely.