Bond Crowd

The bond crowd is composed of floor traders  who engage in bond transactions in an exchange.

The bond crowd is a nickname used to distinguish bond traders from stock traders on the floor of an exchange. It derives from the traders who occupied the New York Stock Exchange’s bond booth following their separation from stock traders in 1902. Those who trade in the highest volume belong to the active bond crowd, while those trading in the lowest volumes belong to the “cabinet crowd.”

Bond brokers buy and sell debt securities, earning a profit off the spread, or the difference between the bid and ask prices, on each exchange. While they may trade on the floor of an exchange, they also sell bonds in the over-the-counter markets. In fact, the vast majority of bond trading takes place outside of exchanges, mainly because so many different bonds exist. Bond brokers can manipulate spreads by adding a markup to the price of a bond they sell, and it can be very difficult for investors to know what the actual bond price should be. That puts a premium on investor knowledge and solid research to ensure markups do not become excessive.

Average investors looking for safe bond investments without worrying about the bond crowd can use the U.S. Treasury’s online platform, Treasury Direct to purchase government bonds and notes. The U.S. government backs debt obligations at a range of durations. Treasury bills offer maturities of a year or less, while treasury notes range from two-year to 10-year maturities. Thirty-year treasury bonds offer the longest-duration security issued by the federal government.

For municipal or corporate bonds, however, investors find themselves at the mercy of bond brokers. The industry has made moves in recent years to respond to investor concerns involving large markups. The Securities and Exchange Commission (SEC) approved a rule in November 2016 requiring firms to disclose to retail customers any markup or markdown on certain trades as part of an effort to boost investor confidence in bond pricing. Both FINRA and the Municipal Securities Rulemaking Board (MSRB), major self-regulatory organizations that oversee bond trading organizations, have released guidance for firms seeking to comply with the new rules.

Bond brokers must pass the Series 7 General Securities Representative Exam administered by the Financial Industry Regulatory Authority (FINRA) before engaging in bond trading. This process requires that exam candidates work with a brokerage firm before sitting for the exam. Investors can help protect themselves by researching the reputability of bond brokers before engaging their services and by doing some of their own research on bond pricing so that they know what to expect.