NBBO (national best bid and offer)

The NBBO (national best bid and offer) is the highest displayed bid and the lowest displayed offer for a security across all US stock exchanges at a given moment. It is what most trading apps show as "the quote."

How it works

Every exchange sends its best quotes to securities information processors (SIPs), which consolidate them and publish the NBBO. One SIP covers NYSE and other non-Nasdaq listed stocks, and another covers Nasdaq-listed stocks.

Under Regulation NMS, the Order Protection Rule generally prohibits trading venues from executing a trade at a price worse than a protected quote displayed on another exchange (a "trade-through"). Brokers also have a best execution duty, and the NBBO is the yardstick for measuring it. Retail orders filled by wholesalers often get "price improvement," meaning a fill slightly better than the NBBO.

A few nuances:

• The NBBO only reflects displayed, round-lot quotes on exchanges. Hidden orders and dark pool liquidity do not appear in it.
• Direct exchange feeds can be faster than the SIP, so professional traders sometimes see changes a fraction of a second earlier.
• Quoted size at the NBBO may be small, so a large order can fill at several worse prices.

Why it matters for traders

The NBBO midpoint is the fairest reference for what a stock is "worth" right now, and the spread between bid and offer is your cost to trade immediately. When news hits, watch the NBBO widen or flicker: it shows how uncertain liquidity providers are. Limit up-limit down bands and many halt mechanisms are also calculated from NBBO prices.

Example

Exchange A shows $15.02 bid, $15.06 ask. Exchange B shows $15.03 bid, $15.07 ask. Exchange C shows $15.01 bid, $15.05 ask. The NBBO is $15.03 bid (B) by $15.05 ask (C), a two-cent spread, even though no single exchange is that tight.

FAQ

What is price improvement?

A fill at a better price than the NBBO, for example buying at $15.048 when the national best offer is $15.05.