IDBs help to determine market interest and price discovery. In connection with their facilitation of transactions, IDBs provide pre-trade price discovery in their markets. Prior to execution, as IDB distributes its dealer quotes, in the form of bona fide bids and offers for securities through a variety of methods ranging from custom-designed trading platforms to voice and email communications. The IBD has received this information from dealers who have the same or similar market interests.
The IDB usually aggregates quote information in order to show its clients the current quotes available in the market place. In the municipal bond markets, for example, an MSBB will select the highest bid and lowest offer available – otherwise known as “reflecting a market” – to show to dealers who are interested in trading. Dealers use this information to trade for their own account and to facilitate customer transactions. In this way, IDBs provide analogous services for the fixed income markets as the consolidated quotation system provides for the equities markets.
IDBs also provide information to dealers about the depth of the market, for example providing different quotes based on the par value of a particular security being bid or offered. Regardless of the market, however, IDBs who use electronic screens will distribute best prices to all participants, not only to those who might be interested in trading. Overall, IDBs publish the best bid and offer available to the markets in an effort to improve price discovery and with the ultimate goal of bringing buyers and sellers together at one price.