General Securities Representative (Series 7) Practice Exam

What is the role of a specialist in stock exchange transactions?

1. Match buy and sell orders

2. Provide liquidity for options

3. Administer margin accounts

4. Issue new stock

The correct answer is: Match buy and sell orders

The role of a specialist in stock exchange transactions primarily involves matching buy and sell orders. Specialists are responsible for maintaining orderly trading in their assigned securities and ensuring that trades occur at fair prices. They facilitate transactions by providing a marketplace for buyers and sellers, ensuring that there is a liquid market for the stocks they handle. Specialists also play a crucial role in absorbing excess supply or demand in the market, particularly during periods of high volatility. By stepping in as a buyer or seller when other market participants are not available, they help to stabilize prices and maintain smooth trading operations. This matches with the essential function of ensuring that orders are processed effectively, aligning with buyer and seller interests. The other options do not accurately describe the main functions of a specialist. Providing liquidity for options is typically the role of market makers focusing on options rather than stocks. Administering margin accounts pertains more to broker-dealers, ensuring clients meet their margin requirements. Issuing new stock is the responsibility of the issuing company rather than the specialist, who merely facilitates trading of existing shares. Thus, the emphasis on matching buy and sell orders highlights the central and pivotal role of the specialist in the stock exchange.