National Best Bid and Offer (NBBO)

National Best Bid and Offer (NBBO)

What is the NBBO?

The National Best Bid and Offer (NBBO) is the consolidated quote that shows the highest available bid price and the lowest available ask (offer) price for a security across U.S. exchanges. It represents the best immediate prices at which buyers and sellers can trade and is a central feature of the U.S. National Market System.

Regulation NMS requires brokers to route customer orders to the best available prices and generally ensures customers receive at least the NBBO price at the time of execution.

How the NBBO is calculated and disseminated

• Security Information Processors (SIPs) aggregate quotes from participating exchanges and market makers to produce the NBBO.
• Two primary SIP feeds handle this:
• Consolidated Quotation System (CQS) for NYSE-listed securities (including NYSE Arca and NYSE American).
• UTP Quote Data Feed for Nasdaq-listed securities.
• The NBBO continuously updates to reflect the single highest bid and single lowest ask. Those two sides can originate from different exchanges.
• Dark pools and some alternative trading systems often do not appear in NBBO data because they do not display public bid/ask quotes.

For traders needing more than the top-of-book prices (for example, to execute larger orders), depth-of-market or Level II data show additional bids and asks beyond the NBBO.

Advantages

• Ensures retail and institutional investors are offered the best displayed prices across exchanges without having to aggregate multiple quotes themselves.
• Levels the playing field by making top-of-book prices transparent and enforceable in broker routing.

Disadvantages and limitations

• Latency: SIP-delivered NBBO can lag faster private exchange feeds. In fast markets this can make NBBO stale, causing unexpected execution prices.
• Incomplete view: NBBO reflects only displayed quotes; it excludes most dark-pool liquidity and hidden orders.
• Enforcement challenges: Proving whether a trade received the NBBO at the exact time of execution can be difficult in high-speed markets.

NBBO and high-frequency trading (HFT)

High-frequency traders often invest in direct exchange connections and faster data feeds rather than relying on SIPs. They can exploit latency between an exchange’s internal feed and the consolidated NBBO to capture small, rapid profits—a practice sometimes called latency arbitrage. Academic research has documented large aggregate profits from such strategies, and this dynamic has contributed to an ongoing speed “arms race” among trading firms.

Example

Sell (asks) available:
– 200 shares at $1,000
– 300 shares at $1,500
– 100 shares at $1,800
– 350 shares at $1,600

Buy (bids) available:
– 100 shares at $900
– 200 shares at $800
– 150 shares at $950

The highest bid is $950 and the lowest ask is $1,000, so the NBBO is quoted as $950 / $1,000.

Practical implications for investors

• Retail investors benefit from NBBO protections because brokers must seek the best quoted prices.
• Traders executing large orders should consult Level II/depth-of-market data or use smart order routing to locate additional liquidity beyond the NBBO.
• Active traders should be aware of feed latency and consider faster market data sources if speed materially affects their strategy.
• Be mindful that not all liquidity is visible in the NBBO; some trading occurs off-exchange in dark pools.

Bottom line

The NBBO provides a consolidated snapshot of the best displayed bid and ask across U.S. exchanges and underpins trade-routing rules intended to protect investors. It is a useful baseline for price discovery, but it has limits—particularly around latency, hidden liquidity, and high-speed trading—which traders should consider when executing orders.