The NYSE is actually a modified auction market wherein people (through their brokers) bid for stocks.

Originally —in 1792—brokers would literally shout, “I have 100 shares of Erie for sale; how much am I
offered?” and then sell to the highest bidder. If a broker had a buy order, he or she would shout, “I want
to buy 100 shares of Erie; who’ll sell at the best price?” The same general situation still exists, although
the exchanges now have members known as specialists who facilitate the trading process by keeping an
inventory of shares of t The NYSE is actually a modified auction market wherein people (through their
brokers) bid for stocks. Originally —in 1792—brokers would literally shout, “I have 100 shares of Erie for
sale; how much am I offered?” and then sell to the highest bidder. If a broker had a buy order, he or she
would shout, “I want to buy 100 shares of Erie; who’ll sell at the best price?” The same general situation
still exists, although the exchanges now have members known as specialists who facilitate the trading
process by keeping an inventory of shares of the stocks in which they specialize. If a buy order comes in
at a time when no sell order arrives, the specialist will sell off some inventory. Similarly, if a sell order
comes in, the specialist will buy and add to inventory. The specialist sets a bid price (the price the
specialist will pay for the stock) and an ask price (the price at which shares will be sold out of inventory).
The bid and ask prices are set at levels designed to keep the inventory in balance. If many buy orders
start coming in because of favorable developments or many sell orders come in because of unfavorable
events, the specialist will raise or lower prices to keep supply and demand in balance. Bid prices are
somewhat lower than ask prices, with the difference, or spread, representing the specialist’s profit
margin. Special facilities are available to help institutional investors such as mutual or pension funds sell
large blocks of stock without depressing their prices. In essence, brokerage houses that cater to
institutional clients will purchase blocks (defined as 10,000 or more shares) and then resell the stock to
other institutions or individuals. Also, when a firm has a major announcement that is likely to cause its
stock price to change sharply, it will ask the exchange to halt trading in its stock until the announcement
has been made and the resulting information has been digested by investors he stocks in which they
specialize. If a buy order comes in at a time when no sell order arrives, the specialist will sell off some
inventory. Similarly, if a sell order comes in, the specialist will buy and add to inventory. The specialist
sets a bid price (the price the specialist will pay for the stock) and an ask price (the price at which shares
will be sold out of inventory). The bid and ask prices are set at levels designed to keep the inventory in
balance. If many buy orders start coming in because of favorable developments or many sell orders
come in because of unfavorable events, the specialist will raise or lower prices to keep supply and
demand in balance. Bid prices are somewhat lower than ask prices, with the difference, or spread,
representing the specialist’s profit margin. Special facilities are available to help institutional investors
such as mutual or pension funds sell large blocks of stock without depressing their prices. In essence,
brokerage houses that cater to institutional clients will purchase blocks (defined as 10,000 or more
shares) and then resell the stock to other institutions or individuals. Also, when a firm has a major
announcement that is likely to cause its stock price to change sharply, it will ask the exchange to halt
trading in its stock until the announcement has been made and the resulting information has been
digested by investors