National Best Bid and Offer - NBBO

DEFINITION of 'National Best Bid and Offer - NBBO'

The best (lowest) available ask price and the best (highest) available bid price to investors when they buy and sell securities. National Best Bid and Offer is the bid and ask price the average person will see. The Securities and Exchange Commission’s Regulation NMS requires that brokers must guarantee customers this price.

BREAKING DOWN 'National Best Bid and Offer - NBBO'

The NBBO is updated throughout the day to show the highest and lowest offers for a security among all exchanges and market makers. The lowest ask price and the highest bid price displayed in the NBBO do not have to come from the same exchange. The best bid and ask prices from a single exchange or market maker are simply called “best bid and offer.” Traders who want to execute orders larger than those available through the NBBO will want to know the other potential bid and ask prices at which they could execute their orders. They can find these in an exchange or market maker’s “depth of book” data. Day traders usually use level 2 market-maker screens to see all the bids and offers for a particular stock.

The Consolidated Quotation System gives the NBBO for securities listed on the New York Stock Exchange, while the Unlisted Trading Privileges Quote Data Feed gives the NBBO for securities listed on the Nasdaq. A shortcoming of the NBBO system is that the data may not be sufficiently up to date, so investors may not get the prices they were anticipating when their trades are actually executed. This problem is mainly of concern to high-frequency traders, whose trading strategies may fail if their orders aren’t executed at a precise desired price. Another NBBO shortcoming is that Regulation NMS is difficult to enforce, because the fast pace of trading and the lack of recorded NBBO prices make it difficult to prove whether an investor received the NBBO price on a trade.

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