Firm Quote

A market maker publishes a firm quote to buy 500 shares at a stated price. A customer's order for 500 shares arrives at that price, but the trader tells the desk to fill only 100 shares at the quoted price and the rest at a worse price, without any change in market conditions between the quote and the order's arrival. What is the concern?

1. A.The market maker acted properly because it filled part of the order at the quoted price.Wrong. Partial fulfillment doesn't satisfy the obligation; the quote must be honored up to its full displayed size.
2. B.The concern only arises if the customer specifically objects to the partial fill.Wrong. The obligation to honor the full displayed size doesn't depend on whether the customer complains.
3. C.This is backing away: failing to honor the firm quote for its full displayed size absent an intervening change in market conditions.Correct. A firm quote must be honored to its full displayed size absent an intervening change in conditions.
4. D.The market maker may always limit fills to whatever size it chooses regardless of what size it displayed.Wrong. Displaying a size represents a commitment to trade at least that size at the quoted price, not an arbitrary ceiling the maker can ignore.

Why: A firm quote must be honored up to its full displayed size at the quoted price absent an intervening change in market conditions; filling only a fraction of the displayed size and worsening the price for the remainder is backing away from the firm's own quote.

A customer attempts to execute against a market maker's published indication of interest, treating it as though it were a binding firm quote at that price and size. A principal is asked to explain the distinction. What should she explain?

1. A.An indication of interest is not a firm quote and does not obligate the market maker to trade at the indicated price and size.Correct. Indications of interest are explicitly non-binding, unlike firm quotes.
2. B.The market maker must honor the indication of interest exactly as if it were a firm quote once a customer attempts to transact against it.Wrong. This reverses the actual rule — indications of interest are specifically non-binding, unlike firm quotes.
3. C.The distinction only matters for securities that are not actively traded.Wrong. The non-binding nature of an indication of interest applies regardless of how actively the security trades.
4. D.The market maker may treat the indication as binding or non-binding at its own discretion depending on market conditions.Wrong. The binding or non-binding character of an indication of interest isn't a matter of the market maker's discretion in the moment.

Why: An indication of interest is not a firm quote and does not carry the same binding obligation to trade at the indicated price and size; a principal must ensure customers and staff understand that only firm quotations obligate the market maker in that way.