Quote-Driven Market Explained: 2025 Trends & What Investors Need to Know

Australian investors are no strangers to the fast-paced world of market trading, but the mechanics behind how trades are executed often remain a mystery. In 2025, quote-driven markets have come under fresh scrutiny, with regulatory tweaks and digital innovation shifting the landscape. Whether you’re trading shares, bonds, or complex derivatives, understanding quote-driven markets can give you a crucial edge.

What is a Quote-Driven Market?

In a quote-driven market, trades occur through dealers or market makers who quote buy (bid) and sell (ask) prices for financial instruments. Unlike order-driven markets—where buyers and sellers transact directly—quote-driven markets rely on intermediaries to provide liquidity and keep prices moving.

• Market makers are always ready to buy or sell, ensuring trades can happen instantly.
• Prices are determined by the quotes provided, not by matching public orders.
• Common in over-the-counter (OTC) markets, corporate bonds, and some small-cap equities.

This system offers advantages like immediate execution and greater liquidity, particularly for assets that don’t trade frequently. However, it also means investors may face wider bid-ask spreads—especially in volatile periods or for less liquid securities.

2025 Policy Shifts and Digital Innovation

The Australian Securities and Investments Commission (ASIC) has introduced new transparency requirements in 2025, targeting quote-driven venues and OTC markets. The goal: to ensure retail and institutional investors get fairer pricing and better insight into how quotes are set.

• Enhanced Reporting: Dealers must now disclose more detail on how prices are determined and the sources of their liquidity.
• Digital Platforms: Electronic trading systems have made quote-driven markets more accessible, with real-time streaming quotes and algorithmic pricing tools filtering into the mainstream.
• Broker Obligations: Brokers have stricter obligations to demonstrate they’re obtaining the best available quotes for clients—a move designed to reduce conflicts of interest and hidden mark-ups.

For example, a retail investor buying corporate bonds in 2025 can now see not only the bid and ask prices, but also the volume available at each quote and the time the quote was last updated. This empowers investors to compare prices and push for better deals.

Implications for Australian Investors

Quote-driven markets remain vital for trading less liquid securities—think small-cap shares, corporate bonds, or certain ETFs. But 2025’s regulatory changes and tech advances are reshaping the landscape:

• Transparency: Investors can more easily spot when bid-ask spreads are unusually wide, indicating potential illiquidity or heightened risk.
• Execution Quality: With better reporting, you can assess whether your broker is delivering genuinely competitive quotes or just routing your order to the easiest (or most profitable) venue.
• Competition: New digital platforms are lowering barriers for smaller market makers to participate, potentially leading to tighter spreads and more choice for investors.

Suppose you’re considering a hybrid security issued by an ASX-listed company. In a quote-driven environment, the spread between the bid and ask might be 1.2%, compared to 0.3% for a heavily traded blue-chip share. Armed with real-time data and regulatory backing, you can now weigh whether the convenience of instant execution outweighs the additional cost.

Order-Driven vs. Quote-Driven: Why It Matters

While Australia’s largest equities (like the big four banks) are traded in order-driven markets, many fixed-income and niche investments remain quote-driven. Each model has pros and cons:

• Order-driven: Transparent, with trades matched directly between buyers and sellers. Best for high-liquidity assets.
• Quote-driven: Greater immediacy and guaranteed liquidity, but potentially less transparent and more expensive for the investor.

Understanding the underlying market structure helps you make smarter choices—whether you’re seeking liquidity, minimising costs, or just wanting to know why your trade executed at a certain price.