Quote-Driven Market

A quote-driven market is a financial market structure in which designated market makers or dealers continuously provide binding buy (bid) and sell (ask) prices for securities — committing to transact at those quoted prices when approached by investors. In a quote-driven system, prices are determined by dealer quotes rather than by matching individual buyer and seller orders directly with each other. The market maker profits from the bid-ask spread — the difference between the price at which they buy from sellers and the price at which they sell to buyers. Quote-driven markets provide continuous liquidity — investors can always transact because a market maker is obligated to quote prices — but the spread represents a transaction cost. Traditional OTC bond markets, interbank foreign exchange markets (where bank dealers quote USD/INR rates), and fixed income markets globally are predominantly quote-driven. In India, the government securities (G-Sec) secondary market operated through the NDS-OM (Negotiated Dealing System — Order Matching) platform combines elements of both quote-driven and order-driven structures. For equity investors, India's NSE and BSE are order-driven markets rather than quote-driven — though certain less liquid markets and OTC segments retain quote-driven characteristics. The distinction between quote-driven and order-driven market structures matters for understanding where transaction costs come from and how price discovery operates in different segments of India's financial markets.