What is a '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 that the average person will see through their brokerage accounts. The Securities and Exchange Commission’s Regulation NMS requires that brokers guarantee customers this price.

BREAKING DOWN 'National Best Bid and Offer - NBBO'

The National Best Bid and Offer – or NBBO – is updated throughout the day to provide the highest and lowest offers for a security among all exchanges and market makers. The lowest ask price and the highest bid price is displayed in the NBBO and 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 the “best bid and offer” rather than the NBBO. Dark pools and other alternative trading systems may not appear in these results all the time given the less transparent nature of their businesses.

Traders that want to execute orders larger than those available through the NBBO should use an exchange or market maker’s “depth of book” data or Level II market maker screens to know the other potential bid and ask prices that they could use to execute their order.

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.

Pros and Cons of National Best Bid and Offer

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 exchange or market makers before placing a trade. This helps level the playing field for retail traders that may not have the resources to always 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 the trades are actually executed. This is a major concern for high frequency traders that rely on quotes to make their strategies 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.

The Bottom Line

The National Best Bid and Offer is the lowest available ask price and the highest available bid price for investors buying and selling securities. While Regulation NMS requires that brokers provide NBBO prices to their clients, the regulations are difficult to enforce and the fast pace of trading makes it difficult to keep information fresh at all times. Investors should keep in mind that the prices may be stale in some cases and that not all prices may be reflected since dark pools and other alternative trading systems may not have listed bid/ask prices.

RELATED TERMS
  1. Best Ask

    The best ask is the lowest quoted offer price from competing ...
  2. Ask Size

    Ask size is the amount of a security that a market maker is offering ...
  3. Crossed Market

    A crossed market is a situation arising when the bid price of ...
  4. Level 2

    Level 2 is a trading service consisting of real-time access to ...
  5. One-Man Picture

    A one man picture is when a security's bid price and ask price ...
  6. Hit The Bid

    Hit the bid is a buzzword used to describe an event where a broker ...
Related Articles
  1. Trading

    How IEX is Combating Predatory Types Of High-Frequency Traders

    IEX is an Alternative Trading System (ATS) that seeks to combat predatory trading, particularly high-frequency trading.
  2. Investing

    Understanding Gold Quote Prices

    Willing to trade gold but puzzled by gold price quotes and terminology? Investopedia explains how to read gold price quotes.
  3. Investing

    How To Create A Real Estate Bidding War

    There are still many areas in the United States that are attractive enough to buyers that you can start a good, old-fashioned bidding war on your property.
  4. Insights

    How to Understand a Stock Quote

    Trading stocks is a popular way to invest money. Learn the details of a quote and what its information suggests, including pricing data and charts.
  5. Trading

    How Forex Brokers Make Money

    Forex brokers set their prices based on commission, spread, or a combination of both. Traders have to be cautious in the thinly regulated forex market.
  6. Trading

    An Introduction To CFDs

    The contract for difference (CFD) offers European traders and investors an opportunity to profit from price movement without owning the underlying asset.
  7. Insights

    Should You Be Afraid Of Dark Pool Liquidity?

    Don't fear the deep end. Dark pool liquidity can help drive down stock cost for everyday investors.
RELATED FAQS
  1. Are Bid Prices of T-Bills Higher Than the Ask?

    An ask price of a security should typically be higher than the bid price. Find out why the method of quoting bid/ask of T-bills ... Read Answer >>
  2. Quote driven and order driven markets: What's the difference?

    The difference between these two market systems lies in what is displayed in the market in terms of orders and bid and ask ... Read Answer >>
  3. How can I be paying more than what a stock is trading for?

    It might seem logical that the last traded price of a security is the price at which it would currently be trading, but this ... Read Answer >>
  4. What are the determinants of a stock's bid-ask spread?

    Stock exchanges are set up to assist brokers and other specialists in coordinating bid and ask prices. The bid price is the ... Read Answer >>
Trading Center