What Was the Automated Bond System (ABS)?
The Automated Bond System (ABS) was an early electronic bond-trading platform the New York Stock Exchange (NYSE) used from 1977 to 2007. The system was used to record bids and offers for inactively traded bonds until they were canceled or executed on the exchange.
The ABS was replaced in 2007 by the NYSE Bond system.
- The automated bond system was an electronic bond quote and execution platform that was in operation from 1977 to 2007.
- The system was developed by the NYSE to facilitate liquidity and transparency for bonds with otherwise low volume and trading activity.
- Volume on the system peaked in 1992, but the system was ultimately phased out and replaced by the NYSE Bond platform as newer technologies entered the bond markets.
Understanding the Automated Bond System (ABS)
The Automated Bond System was an early computerized platform that recorded bids and offers for inactively traded corporate, agency, Treasury, and municipal debt securities on the New York Stock Exchange. The electronic system facilitated the trade of such bonds, particularly corporate bonds.
Inactive bonds are debt securities with relatively low trading volumes. Such bonds may not sell for days, or even weeks, at a time. Because their trading volume is so low, they are often illiquid and have volatile prices. That’s because when inactive bonds are bought or sold in a significant quantity, their price is usually affected. Inactive securities are also sometimes called cabinet securities because they were once kept in a cabinet on the trading floor and only removed when they were needed.
Because the bid and ask prices of inactively traded bonds aren't constantly changing due to demand and supply conditions, investors looking for a quote may have difficulties getting a transparent answer. By having all inactive bonds electronically monitored, the NYSE was able to keep a good inventory of bond prices, just in case an investor was interested in purchasing them.
The ABS allowed for the trading of 1,000 debt securities. The annual subscription fee for the ABS costs $15,000. The NYSE also collected usage fees on bond trades, ranging from 5 cents to 30 cents, depending on trade volume.
History of the Automated Bond System
The Automated Bond System went into effect in 1977. At its launch, the NYSE noted that “trading in corporate bonds has traditionally been a tedious, time consuming and mostly manual operation that involved nine different steps and hour-long searches through cabinet files for possible matches on bonds, prices, and quantities.”
The ABS was an early automated trading system that simplified this complex process. It was at one point the largest bond market of any U.S. exchange. In 1992, it peaked at a volume of $12.7 billion. In subsequent years, though, volume began to drop off, to around $1 billion annually in the system’s final years.
In April 2007, the NYSE launched a new online platform for trading U.S. corporate debt securities, called NYSE Bond. The new system made it easier for small investors to participate in the bond exchange. At its launch, NYSE Bond had no annual subscription fee and charged a transaction fee of 10 cents per $1,000 in face value traded.
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