I have a question about bid-ask spread in an over-the-counter market. I have these data:

i   Spread      Midpoint    Imbalance   Ask         Bid         Total Ask    Total bid

7   -1.378094   -0.310953   1.000000    -1.000000   0.378094        0   1
10  -0.482757   1.254740    0.000000    1.013361    1.496118        1   1
11  -1.618707   -0.190646   1.000000    -1.000000   0.618707        0   1
11  -1.618707   -0.190646   1.000000    -1.000000   0.618707        0   1
10  0.635267    0.695728    0.000000    1.013361    0.378094        1   1
8   -2.308588   0.154294    1.000000    -1.000000   1.308588        0   1
5   -2.308588   0.154294    1.000000    -1.000000   1.308588        0   1

where i is the i-th agent that trades. I am considering both limit and market orders. When a market order occurs, ask/bid is equal to -1. However, I don't know if the spread is correct and what means a negative spread. Could you please help me to understand?

Thank you.


It's tough to know for sure without knowing what OTC market these quotes are over. First off, the calculation of spread is a little funny as by the usual standard of bid-ask spread the calculations for spread are wrong (for i=7,11,8,5) as when you divide a negative number by a negative number it should be positive.

However, what is more odd, and gives us a clue about what is going on here, is that the ask price is negative. Usually a seller is not actual willing to pay you money to get rid of a... whatever this is. My guess is the -1 is a placeholder for when the OTC market maker is unwilling to make an ask price. Especially since this they all happen to be exactly -1. The spread calculation doesn't really make sense in the case where there is no ask.

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