General Securities Sales Supervisor (Series10) Practice Exam

What is the role of a Specialist/DMM in a market?

1. To provide liquidity in all assigned securities

2. To make markets only in their assigned securities

3. To oversee trading activities across multiple exchanges

4. To manage customer transactions independently

The correct answer is: To make markets only in their assigned securities

The role of a Specialist or Designated Market Maker (DMM) is primarily to make markets in their assigned securities. This involves ensuring that there is a continuous auction market and that trading can occur efficiently within those specific securities. They achieve this by providing quotes and maintaining an orderly market, which may involve buying and selling stocks to assist in matching orders. While it is true that Specialists/DMMs are foundational for liquidity within their assigned stocks, they do not provide liquidity for all securities in the market—only the ones they are designated to manage. This focused responsibility allows them to have a deeper understanding of the dynamics and trading patterns of those specific securities, which in turn helps them facilitate smoother trading. In contrast, the oversight of trading activities across multiple exchanges and the management of customer transactions independently are not the responsibilities assigned to Specialists/DMMs. Their role is specifically tied to the securities they are designated for, ensuring effective price discovery and providing stability within that narrower scope.