consists of the national best bid (NBB) and national best offer (NBO), which are the highest bid and lowest offer quotes available for a given security across all public trading venues.
As a result, if we use the quote of Chicago Stock Exchange to construct NBBO
for the whole day, the market can be crossed for 80% of the time during that day.
See LEWIS, supra note 1, at 97-98 (stipulating consequences of NBBO
requirement and how it unintentionally accommodated front-running by high-frequency traders).
exchanges are required to provide the NBBO
, which are the best bids and
An investor's order, regardless of which broker happens to handle it, is always filled at a price at least as good as the NBBO
at the time of execution.
creating a lag in the distribution of information regarding the NBBO
In practice, Shaw used the ability of member firms of a regional exchange to capture and freeze the NBBO
data for a security for up to three minutes to obtain lower prices to benefit hedge fund clients that wanted to cross sell-orders from plan customers (or vice versa).
Under the Securities and Exchange Commission (SEC) Rule 611 exchanges that have not matched a new National Best Bid and Offer (NBBO
) can trade at the old NBBO
for one second.
Generally, spoofing is a form of market manipulation which involves placing certain non-bona fide order(s), usually inside the existing National Best Bid or Offer (NBBO
), with the intention of triggering another market participant(s) to join or improve the NBBO
, followed by canceling the non-bona fide order, and entering an order on the opposite side of the market.
If the venue was not displaying the NBBO
, it could either execute the order at a "significant" level of price improvement, or route 'intermarket sweep orders' to the full displayed size of NBBO
quotations and then execute the balance of the order at the NBBO
-- meaning that a dark pool that could not offer price improvement of more than a penny for stocks trading over US$1 would have to route out any displayed liquidity at the NBBO
before filling any outstanding amount in its own book.
The only exception to this pattern is the NBBO
Survey, which has a stronger correlation with past inflation.