THE OVER-THE-COUNTER MARKET IN BONDS
Remember that the over-the-counter (OTC) market enables dealers
and brokers to trade bonds and stocks by telephone and computer rather than at a
physical exchange. Though decentralized, this system is relatively
systematic and is governed by the National Association of Securities Dealers
(NASD). It writes and enforces the rules by which OTC deals are
conducted.
The NASD also operates the National Association of Securities
Dealers Automated Quotations system (NASDAQ). This computerized market
system lists price quotes for many OTC securities.
When investors want to buy or sell one or more bonds, they
contact a broker-dealer. The broker-dealer then uses the NASDAQ
(
www.nasdaq.com), the Bond Buyer (
www.bondbuyer.com), and other online systems
to find market makers for that security. The NASDAQ provides price ranges
for many corporate bonds, and the Bond Buyer provides current price ranges for
municipal bonds.
How does the broker-dealer find the best possible price to
buy or sell a particular bond? Find out on the next
screen.
