What Is the National Best Bid and Offer (NBBO)?

The National Best Bid and Offer (NBBO) is a quote that reports the highest bid price and lowest 澳洲幸运5官方开奖结果体彩网:ask (offered) price in a security, sourced from among all available exchanges or trading venues. The NBBO, therefore, represents the tightest composite 澳洲幸运5官方开奖结果体彩网:bid-ask spread in a security.

The Securities Exchange Commission's (SEC) 澳洲幸运5官方开奖结果体彩网:Regulation NMS requires brokers to trade at the best available ask and bid price when buying and selling securities for customers and guarantee at least the NBBO quoted price to its customers at the time of a trade.

ꦑ Understanding ඣthe National Best Bid and Offer (NBBO)

The NBBO is calculated and disseminated by Security Information Processors (SIP) as part of the 澳洲幸运5官方开奖结果体彩网:National Market System Plan (NMSP), which is used to process security prices. There are two SIPs responsible for this task. The Consolidated Quotation System (CQS) gives the NBBO for securities listed on the 澳洲幸运5官方开奖结果体彩网:New York Stock Exchange (NYSE), NY-AR♛CA, and NY-MKT, whereas the Unlisted Trading🧸 Privileges (UTP) Quote Data Feed gives the NBBO for securities listed on the Nasdaq.

The NBBO updates throughout the day with the highest and lowest offers for a security among all exchanges and 澳洲幸运5官方开奖结果体彩网:market makers. The lowest ask price and the highest bid price are displayed in the NBBO and are not required to come from the same exchange—the best bid and ask price from a single exchange or market maker is called the “best bid and offer,” rather than the NBBO. Dark pools and other 澳洲幸运5官方开奖结果体彩网:alternative trading systems may not alw🗹ays appear in these results, given theꦚ less transparent nature of their businesses.

Traders who want to execute orders larger than those available through the NBBO should use an exchange’s “澳洲幸运5官方开奖结果体彩网:depth of market” data or Level II screens to identiꩵfy the other po💯tential bid and ask prices that they could use to execute their order.

Advantages and Disadvantages of the NBBO

The NBBO helps ensure that all investors receive the best possible price when executing trades through their broker without worrying about aggregating quotes from multiple exchanges or market makers before placing a trade. This helps level the playing field for 澳洲幸运5官方开奖结果体彩网:retail traders, who may not have the resources to alwꦯays seek out the best prices across multiple exchanges.

The drawback is that the NBBO system may not reflect the most up-to-date data, which means that investors may not get the prices they were anticipating when trades are actually executed. This is a major concern for 澳洲幸运5官方开奖结果体彩网:high-frequency traders (HFT), who rely on quotes to make their str⛎ategies work since they profit from extremely small price changes at volume.

Regulation NMS is also difficult to enforce because of the fast pace of trading and🍬 the lack of recorded NBBO prices. This makes it difficult for a trader to prove whether or not they received the NBBO price on a given trade.

Investors should keep in mind that the prices may be stale in some cases and that not all prices may be reflected, since 澳洲幸运5官方开奖结果体彩网:dark pools and 𓃲o♑ther alternative trading systems may not have listed bid/ask prices.

NBBO and High-Frequency Trading (HFT)

High-frequency traders generally invest in specialized infrastructure in order to directly connect to exchanges and process orders faster than other brokerages. In effect, they do not rely on SIP data for their buy/offer bids and take advantage of the latency between calculation of the NBBO and its publishing to mint profits. Research has focused on whether this enables them to 澳洲幸运5官方开奖结果体彩网:front-run others.

According to a 2013 University of Michigan study, traders profited by as much as $21 billion by taking advantage of this latency. "By anticipating future NBBO, an HFT algorithm can capitalize on cross-market disparities before they are reflected in the public price quote, in effect jumping ahead of incoming orders to pocket a small but sure profit. Naturally, this precipitates an arms race, as an even faster trader can calculate an NBBO to see the future of NBBO, and so on," the study's authors wrote.

Example of the NBBO

Suppose a broker receives the following orders 🐓to offer to sell stock for companyꦿ ABC:

• 200 shares for $1,000
• 300 shares for $1,500
• 100 shares for $1800
• 350 shares for $1,600

At the same time, the following are available bid prices for the same company's stock:

• 100 shares for $900
• 200 shares for $800
• 150 shares for $950

The NBBO for ABC is $950/$1,000 because they are the best bid/offer prices available to traders wไithin the given r♐ange.