What Is a Bid Wanted?
Bid wanted is an announcement by an investor who holds a security, commodity, or currency. It indicates that they are looking to sell the product, and are ready to entertain prices bid for it. Interested parties may thus respond with bids.
A bid-wanted announcement does not represent an agreement to sell but can lead to price negotiations.
- A bid wanted occurs when somebody announces that they are looking for a price at which to sell a security or asset.
- The bid-wanted announcement does not mean the seller is committing a sale, but that they are looking to and that they are willing to hear potential bids from select parties.
- A bid wanted will usually be placed through a broker who, in exchange for a commission or fee, sets the sale parameters, collects offers, and helps negotiate the sale terms.
- Bids wanted are particularly popular in the municipal bond market.
How a Bid Wanted Works
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.
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, also known as the firm time, the product will change hands. In periods of high volatility, firm time becomes increasingly important to the seller. The longer the period is between the bid offering and 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. One of the more popular platforms for the trading of municipal bonds, offered by Bloomberg, is in fact called Muni Bid Wanted.
Because municipal bonds are not traded through a central clearinghouse, each transaction is negotiated directly between buyers and sellers, with a dealer often acting as an intermediary on the seller's behalf. The trade is instigated by sellers declaring to the market, or to 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; the dealer can then decide whether or not to accept the offer.
Even if a bid is the highest, a dealer of municipal bonds does not have to accept it, if they feel it's inadequate; instead, they can choose to internalize, or keep the bond on their books—that is, buy it from the seller themselves, a process called a "last look."
Big Wanted and Abusive Practices
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 and trading process. In 2019, the SEC Fixed Income Market Structure Advisory Committee issued a statement condemning the abuse of the internalizing process called pennying.
Pennying occurs when the dealer, after reviewing the auction information received back in a bid wanted, either matches the best price or executes the bond at a price that is slightly better (i.e., a penny more). At first glance, this practice appears to benefit the customer, as the dealer is providing at least as good a price as was obtained through the auction process. But, over time, this practice harms competitiveness, the Committee argued.
For example, the use of pennying to systematically internalize orders deters aggressive pricing or participation in the auction process by other dealers who fear that the submitting dealer is going to “step in front of” their winning prices or is otherwise using the auction process solely for price discovery purposes. Thus, competing dealers face diminished incentives to put their best foot forward or even submit a price into the auction. This process would also appear to give the submitting dealer an unfair advantage in the auction.