Definition of European Best Bid And Offer (EBBO)
European Best Bid and Offer (EBBO) is a regulatory mandate that brokers provide current best prices available for buying or selling financial instruments. EBBO is the European equivalent of the National Best Bid and Offer (NBBO) in the U.S. On any exchange, a series of price levels appear for both the buy- and sell-side market. The EBBO represents the best price that is available - the lowest price for a buy or the highest price for a sell. The EBBO continually updates the prices so the market participants have fair access to the best prices to transact trades.
Understanding European Best Bid And Offer (EBBO)
The Committee of European Securities Regulators, the forerunner of the European Securities and Markets Authority (ESMA), had the following definition: "The European Best Bid price is the highest bid (or buy) price available in the central limit order books of the regulated markets and MTF's [multilateral trading facilities] contributing to the determination of the EBBO. The European Best Offer price is the respective lowest offer (or sell) price. Thus the EBBO will always deliver the tightest spread available in the contributing trading platforms." Thus, EBBO guarantees that market participants have access to the best available prices at any given time. Where EBBO is supported on a trading platform, market participants' trade orders will be filled at or better than the EBBO price for a given trading instrument.
EBBO Improved With MiFID II
Following the market mayhem of the financial crisis, the ESMA decided it was necessary to implement new rules to create fairer, safer, more efficient and more transparent markets for participants. The financial crisis exposed some holes in the first set of Markets in Financial Instruments Directive (MiFID) rules. MiFID II, the second set implemented in January 2018, imposes stricter regulations on dark pools and high frequency trading (HFT) so that EBBO is available for all traders on a level playing field.