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Today's question: When I place an order for stock, how does the broker make sure that the purchase actually is made?
Feeling flush one morning, you decide to call your broker and place an order to buy, say, 100 shares of a particular stock.
Depending upon the stock you decide to buy, your broker (or account executive, as he or she often is called) can be back to you within a matter of minutes to confirm that you now own 100 shares of the XYZ Corp.
What happens between the time you place your call and the time your broker calls back will vary from firm to firm, but if the firm is a member of the stock exchange that lists the stock you want to buy, the differences won't be all that great.
Suppose your broker works for the nation's largest brokerage house -- Merrill Lynch, Pierce, Fenner & Smith.
The broker will take down your order on a special ticket, noting your name, your account number and other pertinent personal details, and the stock you want to buy. After he fills out the ticket, he will put it in a pneumatic tube that will carry the order to a "wire operator" in the branch you deal with.
Before hanging up on you, the broker should read your order back to you to ensure that he or she is following your instructions to the letter, according to Robin Corkery, Merrill Lynch's manager of marketing.
Your order might be to buy Exxon at "market," that is, at the current trading price. Or you might place a limit order. That means you want to buy Exxon at a particular price, say $53 a share.
Whether your order of the market or limit variety, the wire operator takes a look at the order ticket to make sure your broker has made no errors in filling it out.
For example, Corkery said, if the stock trades on the New York Stock Exchange -- as Exxon does -- and the broker mistakenly marked in the code for the American Stock Exchange, the wire operator should catch that.
The wire operator then transmits your order directly to Merrill Lynch employes on the floor of the stock exchange.
The wire operator sits at a computer terminal that has a cathode ray tube display -- like a little green television set. As he or she types your order into the machine, it appears on the little screen. The wire operator checks what has been typed to make sure it corresponds to the order, and then presses the send button, causing the order to appear on a similar screen in front of a Merrill Lynch clerk at, say, the New York Stock Exchange.
If, for example, your order was for 100 shares of Exxon at market, the Merrill Lynch clerk gives your order to one of the firm's brokers who walks to the specialist who buys and sells (makes a market) in Exxon stock. He or she then buys 100 shares from the specialist. At the same time the Merrill Lynch broker makes the trade, a stock exchange employe takes down the information on a special card and then puts that card into a computer. The details of the trade -- number of shares, the stock and the price -- appear on an electronic display machine that flashes each trade made on the exchange.
The broker, meanwhile, returns to the clerk on the exchange floor and files a report of the trade which then is transmitted back to the Merrill Lynch branch office that you called.
Your broker, or account executive, is informed that the trade has been made, and he or she in turn calls you. Merrill Lynch also sends a written confirmation of the trade outlining the stock purchased, the price and the total cost in dollars.
Suppose, however, you told your broker that you wanted to buy Exxon when it reached $53 a share, but when the Merrill Lynch floor representative reached the Exxon specialist, the stock was trading at $54. The specialist then would enter the order in his "book" and would execute a sale to Merrill Lynch when, and if, Exxon fell to $53.