What is a Firm Quote
A firm quote is a bid to buy or offer to sell a security or currency at the firm bid and ask prices, that is not subject to cancellation. For example, if a market maker posts a firm bid of $25 at 10K, this tells other dealers or traders that the market maker will buy 10,000 shares for a price of $25. Firm quotes differ from nominal quotes, where the price and quantity of a bid or ask quote are still negotiable.
BREAKING DOWN Firm Quote
Broker-dealers and market makers have special functions in the securities markets because they handle orders for customers, as well as trading for their own accounts. That is why they have to comply with specific SEC rules regarding the publishing of quotes and handling customer orders, under the Securities Exchange Act of 1934.
A firm quote is non-negotiable, according to SEC Rule 11Ac1-1 — its firm quote rule. It is a take it or leave it offer. The market maker who published it is obliged to execute an order that is presented to it, at a price and size that is at least equal to its published firm quote.
Failure by a market maker to honor the quoted bid and ask prices for a minimum quantity is a serious violation of industry regulations, known as backing away. NASD Regulation Inc, which carries out the regulatory functions of the National Association of Securities Dealers and oversees markets operated by NASDAQ, uses an automated surveillance system to enable resolution of backing-away complaints in real time.