Municipal Bond Trading

Municipal bonds trade over the counter in the secondary market much like OTC stocks. Municipal bond dealers provide quotes on the bonds that they deal in, to other broker dealers. A two-sided market or quote consists of: 1) a bid - a price at which the dealer is willing to purchase the securities, and 2) an offer - a price at which the dealer is willing to sell the securities. However, unlike most stocks, many municipal bonds are not actively traded in the secondary market. It is not unusual to see a dealer posting a request for a quote on an issue such as “ bids wanted” or “ offers wanted” for an inactive municipal bond. Most municipal bonds are quoted and traded on a yield to maturity basis. This type of quote is known as a basis quote. Some municipal revenue term bonds are quoted and traded as a percentage of par and are known as dollar bonds. Broker dealers must report all transactions in municipal securities to the Real Time Reporting System (RTRS) with in 15 minutes of execution. The MSRB operate the RTRS and members may report transactions between 7:30 AM and 6:30 PM EST. If the member executes an order outside of the reporting system’s business hours the member must repot the trade within 15 minutes of the opening of the RTRS on the next business day. Transactions in municipal fund securities and transactions in securities without a CUSIP number are not required to be reported to the RTRS.

Bona Fide Quotes 

All quotations published by a municipal securities dealer must be bona fide or firm quotes. That is, the dealer publishing the quote must be willing to buy or sell the bonds at those prices. Firm quotes are based on the dealer’s judgment as to the value of the securities and must be reasonably related to the prevailing market. The dealer may also consider their inventory position in the securities and overall market conditions when determining their quote.

Informational Quotes

A dealer may provide an interested party with a quote that is only offered to inform the inquiring party as to the approximate market conditions for the security. A workable indication would give the inquiring party an idea of where the dealer may be willing to buy or sell the security but does not obligate the dealer to trade at those prices. A nominal quote is for informational purposes only and does not require that the dealer trade at those prices.

Examples of qualifiers that indicate that the dealer is not providing firm quotes are:

  • “It looks like”
  • “It’s around”
  • “Last I saw”
  • “Subject”
  • “Work it out”
  • “Nominal”

Out Firm Quotes

Because municipal bonds do not trade as actively as stocks, time is not as crucial as it is when executing an equity transaction. Municipal dealers will often hold firm quotes for a dealer who expresses interest in the bonds. Holding a firm quote is known as an out firm quote.


A Municipal securities dealer gives a quote to a dealer interested in purchasing the bonds of “6.12% firm for 45 minutes with a 5 minute recall.” The municipal dealer is willing to sell the bonds to the purchasing dealer at a yield to maturity of 6.12% and will be willing to do so for 45 minutes. However, if during that 45 minutes another interested party wishes to purchase the same bonds, the second interested buyer will receive a subject quote based upon the fact that the selling dealer is still obligated to sell the securities to the first buyer. The selling dealer will then contact the first buyer and give them 5 minutes notice to buy the bonds or lose the right to do so at the quoted price. If the first dealer fails to purchase the bonds within the time allowed by the 5-minute recall, the selling dealer may then trade the bonds with the second interested party at 6.12%.


Municipal securities dealers may only report trades that actually occur.


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