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Which of the following statements about specialists is false?
A. Specialists are employees of the exchange on which they oversee trades.
B. Specialists are market makers in assigned stocks and, as such, can profit from these investments.
C. In addition to acting as market makers, specialists also act as agents and execute limit orders placed by commission brokers for their clients if the specified price is reached.
D. Specialists are required to maintain a fair and orderly market in their assigned stocks, meaning that they must buy if there is an excess of sell orders and sell out of their own portfolios if there is an excess of buy orders.
Answer: A
Explanation:
Explanation/Reference:
Explanation: The statement that specialists are employees of the exchange on which they oversee trades is false. Specialists are separate firms that are members of the exchange. Specialists are market makers in the stocks that are assigned them by the exchange and can earn profits (or losses) on these investments, just like any other market maker. They are required to maintain a fair and orderly market in their assigned stocks, however, which means they sometimes must trade against the market. They also maintain a central limit order "book" in their assigned stocks.
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B. So that they can be held legally accountable.
C. So that employees will follow the policy directives.
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Answer: A
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