Level 3

Level III Quote — What It Is and Why It Matters

Key takeaways
* The U.S. market publishes three quote tiers: Level I, Level II, and Level III.
* A Level III quote provides the deepest market information and lets authorized participants enter and update quotes and execute orders.
* Level III access is restricted to registered market makers and certain institutional participants; retail investors do not see Level III directly, though their brokers may use it to obtain best execution.

What a Level III Quote Is

A Level III quote is a comprehensive, real‑time feed of pricing and size information for a security. It typically includes:
* Best bid and ask prices
* Quote sizes (displayed and, where applicable, hidden/reserve sizes)
* Price and size of the most recent trade
* Intraday high and low prices
* Deeper market depth (often up to around 20 best bids and asks)

Beyond passive display, Level III services allow authorized participants (primarily registered market makers and some broker/dealers) to enter or change quotes, execute orders, and send trade confirmations.

The Three Quote Levels — A Brief Comparison

• Level I: Basic price data — the best (highest) bid and best (lowest) ask and their displayed sizes. This is what most retail platforms show.
• Level II: Adds market depth by showing multiple bid and ask levels from different market makers (typically the top 5–10 prices). Useful for seeing how liquidity stacks up across participants.
• Level III: All Level I and II information plus the ability for authorized firms to input and update quotes and execute trades. Provides the deepest view of the order book.

Who Uses Level III and Why

Level III access is reserved for market makers and certain institutional participants who are authorized to display prices and trade on an exchange (for example, registered Nasdaq market makers). Individual investors and typical retail accounts do not receive Level III feeds. However, brokers use Level III information behind the scenes to route and execute client orders and to satisfy best‑execution obligations.

Reserve and Hidden Orders (and ECNs)

Electronic communication networks (ECNs) and modern trading platforms support order types that affect what appears on quote feeds:
* Reserve orders: show a displayed portion (the display size) at a price while the remaining shares are hidden from the public quote, revealing only a portion on Level III.
* Hidden orders: do not display any size publicly and are often invisible on quote feeds; they let large traders work orders without revealing full size.

ECNs aggregate and match orders from multiple participants and typically display the best available quotes from connected participants. Reserve and hidden orders give traders discretion when managing large orders and can reduce market impact.

How Level III Supports Large and Institutional Trades

Institutional traders executing large block trades rely on Level III for:
* Detailed market depth to identify liquidity across price levels
* The ability to post and update quotes directly
* More efficient routing and execution when handling high volumes

Although retail investors don’t see Level III directly, the deeper liquidity information it provides helps brokers find better execution prices for client orders.

Conclusion

Level III quotes provide the deepest, most functional view of a market’s order book and are integral to how market makers and institutions quote, route, and execute trades. While not accessible to most individual investors, Level III is a critical infrastructure piece that supports liquidity, large‑trade execution, and brokers’ best‑execution practices.