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When
broker-dealers want to trade a bond on behalf of a client or their firm, they
shop the street, or shop around, for the best offer or bid price they can
find. They eventually locate a market maker who offers a bid or offer
price that falls within the range they are seeking. (The bid is the price
at which the market maker will buy the bond; the offer is the price at
which the market maker will sell the bond.)
A firm bid—sometimes called a firm quote is an
assured bid or offer price. A subject quote—sometimes called a
nominal quotation—is an estimate of value, not an invitation to trade.
The NASD requires market makers to add a prefix to the subject quote, alerting
broker-dealers to this fact. The prefix may be listed as FYI—for
your information—or FVO—for valuation only.
Sometimes the best bid or offer price is higher or lower than the
broker-dealer would like. Arriving at an actual sale price may involve a
number of workout quotes to negotiate and finalize the deal. Some
bonds are frequently traded, while others may be less marketable. The
broker-dealer may not always get bids or offers right away. To solicit
bids and offers, the broker-dealer can post bid wanted (BW) and offer
wanted (OW) announcements. The National Quotation Bureau daily
publishes The Yellow Sheets, which list bid and asked prices for corporate
bonds traded over the counter. |
