Firm Quote

What Is a Firm Quote?

A firm quote is a bid to buy or offer to sell a security or currency at the firm bid and ask prices that isn't subject to cancellation. In simple terms, it's the level that the market maker will give liquidity to a counterparty.

Seeing Firm Quotes

Indeed, even on Wall Street trading desks, there are firm quotes. A customer might call the desk and ask for a live market on a block of stock, options, or ETFs. The trader will go through a quick agenda before giving the quote. When the firm quote is made, the customer has the opportunity to transact at the stated price or sit idle. Generally talking, when a block is being priced up by a market-production desk, the price still up in the air by a summit of many factors, including asset liquidity, event risks, situating, and market news in addition to other things.

How a Firm Quote Works

Agent dealers and market makers have special capabilities in the securities markets since they handle orders for customers, as well as trading for their own accounts. For that reason they need to follow specific SEC rules in regards to the distributing of quotes and taking care of customer orders, under the Securities Exchange Act of 1934.

A firm quote is non-negotiable, as per SEC Rule 11Ac1-1 — its firm quote rule. It is a live with or without it offer. The market maker who distributed it is obliged to execute an order that is introduced to it, at a price and size that is basically equivalent to its distributed firm quote.

Disappointment by a market maker to respect the quoted bid and ask prices for a base quantity is a serious violation of industry regulations, known as backing away. FINRA rule 5220 states that market participants must backup their quotes (post a "bonafide quote") and that, "member will make an offer to buy from or sell to any person any security at a stated price except if such member is prepared to purchase or sell."

Illustration of a Firm Quote

For instance, if a market maker posts a firm bid of $25 for 10K, this tells different dealers or traders that the market maker will buy 10,000 shares at a cost of $25. Firm quotes vary from nominal quotes, where the price and quantity of a bid or ask quote are as yet negotiable.

Another model would be if a buy-side firm calls a Wall Street trading desk to price up a block of a million shares of an ETF. How about we accept the ETF is priced at 83.48 x 83.52 on the screens. Moreover, sometimes the customer won't uncover their course on the trade, consequently not permitting the market maker that data. After the bank (market maker) goes through their agenda, they make a quote of 83.45 x 83.53 — each side for a million shares. Since the customer is in fact a buyer, they choose to lift the market maker's offer at 83.53 for the million shares.

Features

• Merchant dealers and market makers have special capabilities in the securities markets since they handle orders for customers, as well as trading for their own accounts.
• Disappointment by a market maker to respect the quoted bid and ask prices for a base quantity is a serious violation of industry regulations, known as backing ceaselessly.
• FINRA utilizes an automated surveillance system to empower the resolution of backing-away grievances in real-time.
• To that end they need to conform to specific SEC rules in regards to the distributing of quotes and dealing with customer orders, under the Securities Exchange Act of 1934.