Automated Bond System (ABS)

Posted in Finance, Accounting and Economics Terms, Total Reads: 386
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Definition: Automated Bond System (ABS)

ABS is the system adopted by the New York Stock Exchange to maintain records of Bid/Ask prices for bonds that are not traded too frequently. The issues of inactive / bonds not traded too frequently is that there may not be otherwise ready quotes available.


It is expected of an exchange, to be a market maker – a market maker by definition should be able to offer a bid and an ask rate readily. The profits made, are on the bid and ask spread between the 2 values quoted.


Even if there are, there might not be significant movement owing to lack of supply/demand changes. The Automated Bond System sort of acts as a common-ground.


Given the low activity on these bonds, every single trade that happens would be a pointer to some change in demand / supply movements. These, if tracked closely could help gauge what the best quotes might be. So the NYSE acts as an aggregator of such information.

 

Hence, this concludes the definition of Automated Bond System (ABS) along with its overview.

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