What Is Normal Market Size?

Normal market size is a share classification structure based on the number of shares outstanding. This classification is used in determining the number of shares that a market maker can trade at the quoted price.

Key Takeaways

  • Normal Market Size (NMS) is the minimum number of shares in a particular company that can be traded at a specific price.
  • Market makers cannot offer set bid and ask prices for an indefinite number of shares, but they must offer enough shares to keep trade flowing and markets liquid.
  • To manage that need for liquidity, they must at least offer set prices for volumes of stock at the NMS.
  • Traders can still buy or sell shares above the NMS, but the price may be higher or lower than the quoted price.
  • Generally, the larger the company, the higher the NMS figure, as bigger companies tend to have more outstanding shares and a higher level of liquidity. 

Understanding Normal Market Size

Normal market size (NMS) is the minimum number of securities for which a market maker is obliged to quote firm bid and ask prices. In a quote-driven market, market makers cannot be expected to offer firm quotes up to an unlimited size. However, they must provide sufficient liquidity for investors to be able to transact reasonable quantities of a security at a quoted price. This is what constitutes the normal market size.

How Normal Market Size Works

If Company X has an NMS of 1,000, a market maker must quote firm prices for volumes of that stock at least that size. The market maker may go higher though. For example, they may quote 3,000 as a size offer and a 3,000 bid. In such a scenario, a trader should be able to buy or sell up to 3,000 shares of Company X via that market maker at the quoted prices.

The market maker's quote will show on a trader's screen as Company X at $1.05 - $1.10 (3,000 x 3,000). This means the market maker is prepared to sell up to 3,000 shares at $1.10 or buy up to 3,000 shares at $1.05.

If a trader wants to buy or sell more than 3,000 shares, this may be possible, but the trader may have to pay more than the quoted price for the shares or accept less than the quoted price to sell the shares. Breaking the transaction up into smaller trades may allow a trader to buy or sell the shares in question at the desired price.

Special Considerations

Large companies tend to have high NMS figures because of their high liquidity levels. For example, a large company may often see millions of its shares traded in one day, which makes for an NMS in the tens of thousands of shares. In these instances, a trader can be pretty sure if they buy 3,000 shares, the prices quoted are good, and the order won't move the market.

Small companies have lower NMS figures because their shares tend to be less liquid. However, this doesn't necessarily mean that a trader can't purchase a number of shares larger than the NMS. If the trade request is within the market makers quoted size, then a trader should be able to deal.