SHOPPING THE STREET FOR BONDS

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.

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