Automated Bond System - Explained
What is an Automated Bond System?
Written by Jason Gordon
Updated at April 17th, 2022
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Table of Contents
What is an Automated Bond System?How Does an Automated Bond System Work?History of the Automated Bond SystemAcademics Research on Automated Bond System ABSWhat is an Automated Bond System?
The Automated Bond System (ABS) is an electronic system for bond information and bond trading. ABS is a digital platform for the New York Stock Exchange (NYSE) that tracks the prices and records the bids and offers of inactive bonds until they are canceled or executed on the exchange. ABS served as a computerized platform for NYSE between 1977 and 2007 and was actively used during the period.
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How Does an Automated Bond System Work?
The Automated Bond System tracks the prices, bids, and offers of any type of inactively traded securities on the New York Stock Exchange. Examples include corporate bonds, Treasury bonds, municipal debt securities, and others. Tracking the prices, bids, and offers of inactive bonds is important to investors, and the ABS serves as a database to access all information on inactive bonds. Debt securities that have low trading volume are referred to as inactive bonds, these bonds are characterized by volatility and illiquidity. Given the nature of the inactive bond, they often do not have meaningful market prices, because they may not sell for days or weeks. Inactive bonds are otherwise called cabinet securities because they are not constantly traded and remain on the cabinet for a long time. Given that inactive bonds are traded in low volume and there is no significant changes to their prices, bids, and offers, investors often find it hard to access information about them. The Automated Bond System gave a solution to this as it comprises a database where information about inactive bonds can be accessed until they are canceled or executed on NYSE. The ABS paved the way for the electronic monitoring of securities in the inactive category in which a good inventory of bond prices is kept to enable investors to access transparent prices when they want to purchase them.
History of the Automated Bond System
The Automated Bond System was introduced in 1977 as an electronic system to track the bids and offers and prices of inactive bonds. ABS, as used in the market as a trading system helped to simplify the complex processes and made transparent information on inactive bonds accessible to investors. The ABS was used between 1977 and 2007 and it allowed for the trading of 1,000 debt securities. Investors or traders are required to pay an annual subscription fee of $15,000 to NYSE to use the ABS, in addition to the transaction fee charged by NYSE.