What Is For Valuation Only (FVO)
For Valuation Only (FVO) is a notation included in a nominal quotation for a security. Market makers use FVO quotes to help establish the value of a security. When an FVO notation appears in front of a price quote, it denotes the quote is merely for informational purposes, and not an offer from the issuing party.
Understanding For Valuation Only (FVO)
For Valuation Only (FVO) will appear as a notation in a nominal security price quote as a courtesy to investors, indicating that it is not an invitation to trade. Such nominal quotations will include either FVO or FYI (For Your Information).
The purpose of a nominal quote is to allow a trader to value a current holding where it may be otherwise difficult to establish a current benchmark, and to indicate a price for informational purposes without obligating a broker to enter a trade. Such quotes are helpful in determining a margin position, providing information necessary to determine the current value of a particular asset, but do not serve as invitations to trade. Nominal quotes differ from firm quotes, which are invitations to trade at firm prices and are not subject to cancellation.
How Nominal Quotes and Firm Quotes Differ
Both nominal quotes and firm quotes are key tools of market makers, both brokerage houses and individual intermediaries, whose purpose is to enable the smooth flow of financial markets. Because broker-dealers and market makers handle orders for their customers as well as for their own accounts, they must comply with Securities and Exchange Commission rules about publishing quotes and handling customer orders, under the Securities Exchange Act of 1934.
Under these rules, when a broker publishes a firm quote, it is non-negotiable, and the broker is obliged to execute orders at the published price. Any broker who fails to honor the quoted bid is in violation of industry regulations. This violation is known as backing away.
The FVO notation permits a trader to provide valuation information in a nominal quote while abiding by SEC rules. Brokers annotating a securities price with FVO ensure that all parties understand the quote has been given out of courtesy and does not represent an invitation to trade.
For example, an FVO nominal quote may be presented when a trader considers purchasing a contract on a futures exchange, only to find that no market maker has put out a firm bid and therefore a price for the contract has not been established for a long period of time. In that case, the trader could request a nominal quotation to get a sense for what market makers might offer under current conditions before deciding whether or not to pursue an actual contract. Such a quotation would necessarily be annotated FVO or FYI.
In the context of a nominal quote, FVO should not be confused with Fair Value Option, which refers to an accounting tool for assessing the values of the financial instruments of a business.