The electronic venues for bond trading are generally formed as an ATS which seek to match buyers and sellers but do not impose an obligation on the liquidity providers to post firm quotes or to fill an order. Instead, a quote displayed on an ATS serves as an "indication of interest" and not a firm commitment to buy or sell.
A bid (/offer) to purchase a bond at a price which matches or exceeds a posted offer (/bid) may not be due an execution. The most common reasons for this are as follows:
- Offer Quantity - It is not uncommon for liquidity providers to post an offer which is subject to a minimum trade size. If the bid quantity does not meet or exceed the minimum size, it will not be accepted.
- Execution Obligation - The electronic venues for bond trading are generally formed as ATSs which seek to match buyers and sellers but do not impose an obligation on the liquidity providers to post firm quotes or to fill an order. Instead, a quote displayed on an ATS serves as an "indication of interest" and not a firm commitment to buy or sell.
- Duplicate Offer - A given liquidity provider may post offers on multiple ATSs and, since the identity of the provider is generally not disclosed, those offers may be aggregated and give the appearance of a greater supply of available inventory than that which actually exists. As a result, if an offer is accepted via a given ATS and the liquidity provider does not act quickly enough to remove offers from other ATS', bids to purchase this "phantom" inventory are likely to be rejected.
Please note that market orders for Bonds are effectively simulated Limit orders and are subject to the same constraints described above.
Investors should also note that many venues we use for Bond trading will not hold an order that is not immediately marketable, which may cause the order to be held and monitored (dark blue status in TWS); however, your order is still working and will be eligible for execution if any of the liquidity providers we use for execution services are interested in trading with it.