The Over-the-Counter Bond Market

The over-the-counter (OTC) bond market enables dealers and brokers to trade bonds by telephone and computer rather than at a physical exchange. Though decentralized, this system is relatively systematic and is governed by the National Association of Securities Dealers (NASD). It writes and enforces the rules by which OTC deals are conducted.

The NASD also operates the National Association of Securities Dealers Automated Quotations system (NASDAQ). This computerized market system lists price quotes for many OTC stocks and bonds.

When investors want to buy or sell one or more bonds, they contact a broker-dealer. The broker-dealer then uses the NASDAQ ( www.nasdaq.com), the Bond Buyer ( www.bondbuyer.com), and other online systems to find market makers for that security. The NASDAQ provides price ranges for many corporate bonds, and the Bond Buyer provides current price ranges for municipal bonds.

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