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 is not subject to cancellation. In simple terms, it's the level that the market maker will provide liquidity to a counterparty.

Understanding Firm Quotes

Even on Wallꦑ Street trading desks, there are firm quotes. A customer may call the desk and ask for a live marꦗket on a block of stock, options, or ETFs. The trader will go through a quick checklist before providing the quote. Once the firm quote is made, the customer has the opportunity to transact at the stated price or do nothing. Generally speaking, when a block is being priced up by a market-making desk, the price quoted is determined by a culmination of many factors, including asset liquidity, event risks, positioning, and market news among other things.

How a Firm Quote Works

Broker-dealers and market makers have special functions in the securities markets because they handle orders for customers, as well as trading for their own accounts. That is why they have to comply with specific SEC rules regarding the publishing of quotes and handling customer orders, under the 澳洲幸运5官方开奖结果体彩网:Securities Exchange Act of 1934.

A firm quote is non-negotiable, according to SEC Rule 11Ac1-1 — its firm quote rule. It is a take-it-or-leave-it offer. The market maker who published it is obliged to execute an order that is presented to it, at a price and size that is at least equal to its published firm quote.

Failure by a market maker to honor the quoted bid and ask prices for a minimum quantity is a serious violation of industry regulations, known as 澳洲幸运5官方开奖结果体彩网:backing away. FINRA rule 5220 states that market participants must stand by their quotes (post a "bonafide quote") and that, "member shall make an offer to buy from or sell to any person any security at a stated price unless such member is prepared to purchase or sell."

Example of a Firm Quote

For example, if a 澳洲幸运5官方开奖结果体彩网:market maker posts a firm bid of $25 for 10K, this tells other dealers or traders that the market maker will buy 10,000 shares for a price of $25. Firm quotes differ from 澳洲幸运5官方开奖结果体彩网:nominal quotes, where the price and quanti🔴ty of a bid or ask quote are still negotiable.

Another example would be if a buy-side firm calls a Wall Street trading desk to price up a block of 1,000,000 shares of an ETF. Let's assume the ETF is priced at 83.48 x 83.52 on the screens. Additionally, sometimes the customer will not reveal their direction on the trade, thus not allowing the market maker that information. After the bank (market maker) goes through their checklist, they make a quote of 83.45 x 83.53—each side for 1,000,000 shares. Because the customer is in fact a buyer, they decide to lift the market maker's offer at 83.53 for the million shares.