Suppose stock X trades on the New York Stock Exchange. Information from the limit order book (LOB) for stock X is contained below.

Limit buy orders Limit sell orders

Price Shares Price Shares

$80.50 1000 $81.00 1500

$ 80.38 700 $80.75 700

$ 80.30 500

Suppose the specialists quotes are as follows:

Bid price $80.30 Ask price $80.70

Bid depth 600 shares Ask depth 800 shares

What is the bid-ask spread?

For each of the following scenarios answer all the questions below:

Scenarios.

A market buy order for 400 shares comes in.

A market sell order for 600 shares comes in.

Questions.

At what price is it executed? (Remember that the market orders will be executedat the best bid or ask prices).

Did the LOB change?Why or why not?

Did the specialists inventory of stock X change?Why or why not?

Did the specialist act as a dealer, broker or both in this transaction?