Introduction to Stopped Order
A stopped order refers to the order which is prevented by the New York Stock Exchange (NYSE) floor specialist from being executed, because there may be a better price available. Orders may be stopped for some duration but must be completed by the end of the day of trade.
Stopped Order Explained
A specialist is a stock exchange member who serves the role of market marker to coordinate and oversee the trading of a given stock. The specialist may stop or hold on to a market order because they believe there will be a better price available.
Also, they believe they can post the market order as a limit order, and it will be filled out. Alternatively, they are willing to fill the market order with their shares at the current market price or higher price if the two previous scenarios don't fill the order that has been stopped.
As of today, on the NYSE trading floor specialists no longer exist, and orders stopped in this fashion no longer happen. A stopped order is different from a stop order. A specialist prohibits a stopped order from being executed because the specialist has discretion in filling orders. An order is stopped if the specialist feels that an order will get a better offer if they hang on to it.
According to NYSE law, after the order has been stopped, it must be detected, and the specialist is expected at that time to guarantee the market price should the specialist fail to obtain a better price. Orders may be delayed for a moment, but must be filled out before the trading day is over.
Reasons for Taking a Stopped Order
For any number of reasons, a specialist may stop order, but they can only do so if they can guarantee the market price at the time the order was discontinued. Specialists may take these measures to avoid unpredictable movements in stock prices, or they may do so to protect themselves. Specialists must take an active part in stock to have liquidity. By buying and selling their share inventory, specialists will try to avoid large losses to provide liquidity and protect themselves as well.
