What Is a Bid Wanted?
Bid wanted is an announcement by an investor who holds a security, commodity, or currency. The investor is announcing that they are looking to sell the product. Interested parties may respond with bids. A bid-wanted announcement does not represent an agreement to sell but can lead to price negotiations.
- A bid wanted is an alert by an investor that they have a financial instrument that they are looking to sell and that they are willing to hear potential bids.
- The bid-wanted announcement does not mean the seller is agreeing to make a sale, but that they are looking to start the communication on a potential sale.
- A bid wanted will usually be placed through a broker in exchange for a commission or fee.
- The broker will set the parameters of the sale, find select interested parties, and help negotiate the terms of the sale.
Understanding a Bid Wanted
Using a bid-wanted announcement to obtain bids may not help the seller receive the highest price for a security, but it is likely to provide a much higher level of privacy. Privacy may be necessary for sellers who do not want to communicate that they are shifting their financial positions. Bid-wanted announcements are likely used when investors do not want to solicit bids for securities directly and instead obtain proposals through a broker.
How a Bid Wanted Works
The broker will be an individual or firm and will charge a fee or commission for assisting the investor with the bid wanted process. Brokers will work with the seller to set price parameters for the security, commodity, currency, or other product offered. They identify parties who may be interested in bidding and disseminating information to these bidders. Brokers may only send the bid-wanted announcement to a set of investors rather than to the broad market.
The broker will work with the seller to achieve the best possible price and inform bidders if their offer is well above or below set parameters or seems to have been an error. A bid offer stipulates both the price the potential buyer is willing to pay and the quantity to be purchased at that price. The broker will also inform the seller of the high bids.
A bid-wanted announcement lists the time when bids are welcome. It will also state when the honoring of the winning bid will take place. At this time, the product will change hands. This time is also known as the firm time. In periods of high volatility, firm time becomes increasingly important to the seller. The longer the period is between the bid offering and when its honoring, the more time the buyer has to revise the bid.
Bid Wanted and Municipal Bonds
The municipal bond market is one in which traders will often encounter the term bid wanted. In fact, one of the more popular platforms for the trading of municipal bonds is Bloomberg's Bid Wanted.
Because municipal bonds are not traded through a central clearinghouse, each trade is negotiated directly between buyers and sellers. The trade is instigated by sellers declaring to the market, or individual customers, that they want bids on a particular kind of bond.
When a seller triggers a bid wanted auction they will receive a list of submissions if there are any. The dealer can then decide whether or not to accept the offer. Even if a bid is lowest, a dealer of municipal bonds does not have to sell and can choose to keep the bond on their books instead.
This bilateral nature of the bid wanted auction process has led some observers of the municipal bond market to accuse it of suffering from favoritism, and some have called for reform of the municipal bond market structure.