Types of Quotations

Now that you know who makes markets, let's look at the different types of quotes they can publish, and what obligations come with each.

Firm Quotation

• A quote at which the market maker is obligated to buy or sell at the quoted price for at least the quoted size
• FINRA Rule 5220 requires market makers to honor their quoted prices
• Backing away from a firm quote (refusing to honor it) is a violation deemed conduct inconsistent with just and equitable principles of trade
• Firm quotes are the default for quotations entered in inter-dealer quotation systems

Exam Tip: Gotchas

• A firm quote is binding. A market maker who publishes a quote without any modifier has made a firm quote and must honor it at the quoted price and size.
• Backing away (refusing to honor a firm quote) violates FINRA Rule 5220. The exam may describe a scenario where a market maker refuses to sell at a quoted price; that is backing away.

Subject Quotation

• A quote that is not firm - the market maker may change or withdraw the quote before executing
• The market maker must indicate the quote is "subject" at the time it is published
• Used when the market maker is willing to trade but wants flexibility on exact price or size
• Also called a "subject to confirmation" quote

Workout Quotation

• A range of prices within which a market maker believes a trade could be executed, given time to find a counterparty
• Not a firm commitment; the market maker needs time to "work out" the trade
• Common for illiquid or infrequently traded securities where an immediate execution at a single price may not be possible

Nominal (Informational) Quotation

• A quote provided for informational purposes only - not an offer to trade
• Must be clearly identified as nominal when published
• Used to indicate an approximate value of a security when no active trading interest exists
• SEC Rule 15c2-7 requires proper identification of quotations to prevent misleading investors

Bid Wanted (BW) and Offer Wanted (OW)

• Bid wanted: The seller is soliciting bids from potential buyers; no firm ask price is set
• Offer wanted: The buyer is soliciting offers from potential sellers; no firm bid price is set
• Common in municipal bond and thinly traded markets where dealers seek price discovery

Exam Tip: Gotchas

• Only firm quotes are binding; subject, workout, nominal, and BW/OW quotes all give the market maker flexibility.
• Nominal quotes must be labeled as such. Failing to identify a nominal quote as informational could mislead investors.

Quick Comparison