What is a "Firm Quote"?
A firm quote is displayed at which the market maker is obligated to buy or sell at the quoted price.
A firm quote includes a bid and asks price at which a market maker is willing to trade a specific quantity.
A firm quote is non-negotiable. It is a "take it or leave it" offer.
With a firm quote, the price is guaranteed. Market makers are obliged to deal with the displayed price and volume when their quotes are strong.
Understanding Firm Quotes
Even on Wall Street trading desks, there are firm quotes. A customer may call the desk and ask for a live market on a block of stock, options, or ETFs. The trader will go through a quick checklist before providing the quote. Once the firm quote is made, the customer can transact at the stated price or do nothing. Generally speaking, when a market-making desk is pricing up a block, the price quoted is determined by a culmination of many factors, including asset liquidity, event risks, positioning, and market news, among other things.
How a Firm Quote Works
Broker-dealers and market makers have special functions in the securities markets because they handle orders for customers and trading for their accounts. That is why they have to comply with specific SEC rules regarding publishing quotes and managing 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 leaves it to offer. The market maker who published it is obliged to execute an order presented to it at a price and size that is at least equal to its printed firm quote.