Legal Definitions - Automated Bond System

The term ABS stands for Automated Bond System.

The Automated Bond System is a specialized electronic platform operated by the New York Stock Exchange (NYSE). It functions as a sophisticated computerized network that allows authorized participants, such as brokerage firms and institutional investors, to digitally share current prices (quotations) for various types of bonds and to efficiently complete bond buying and selling transactions (execute orders) through a secure, automated process.

Here are some examples of how the Automated Bond System might be used:

• Institutional Investment: Imagine a large university endowment fund decides to allocate a portion of its assets to high-grade corporate bonds. The fund's investment manager, through their brokerage firm, would access the Automated Bond System to view real-time price quotes from various sellers for the specific corporate bonds they are interested in. Once they find an acceptable price, they would use the system to electronically submit and execute an order to purchase those bonds, completing the transaction quickly and efficiently.

  This illustrates how the ABS facilitates the electronic transmission of quotations and the execution of buy orders for institutional investors seeking to acquire bonds.

• Broker-Dealer Facilitation: A financial advisor at a major brokerage firm has a client who needs to sell a significant holding of municipal bonds to fund a new real estate purchase. The brokerage firm, as a subscriber to the ABS, would use the system to post the client's bonds for sale, indicating the desired selling price. Other subscribers on the network could then see this quotation and, if interested, place an order to buy, with the ABS handling the electronic execution of the trade between the parties.

  This example demonstrates the ABS's role in allowing brokerage firms to transmit selling quotations and execute orders on behalf of their clients.

• Market Making Activities: A large investment bank acts as a "market maker" for U.S. Treasury bonds, meaning it consistently offers to buy and sell these bonds to provide liquidity to the market. This bank would utilize the Automated Bond System to continuously update its bid (buy) and ask (sell) prices for various Treasury securities. Other authorized participants can then see these live quotations on the ABS and instantly execute trades with the market maker, ensuring a fluid and transparent market for these government bonds.

  Here, the ABS is crucial for market makers to continuously transmit their quotations and for other subscribers to execute orders against those prices, ensuring constant trading activity.