What Is the Concept of the ‘National Best Bid and Offer’ (NBBO)?
The NBBO represents the highest displayed bid price (the best price a buyer is willing to pay) and the lowest displayed offer price (the best price a seller is willing to accept) across all competing regulated exchanges for a security. It is a regulatory requirement in the US, ensuring that investors receive the best available price when executing a trade.
Execution must occur at a price equal to or better than the NBBO, preventing excessive negative slippage.
Glossar
NBBO
Benchmark ⎊ The National Best Bid and Offer serves as the primary benchmark for determining fair value across fragmented cryptocurrency markets, especially for options pricing models.
Best Available Price
Execution ⎊ Best Available Price, within cryptocurrency derivatives, represents the lowest ask price accessible to a trader given prevailing market conditions and order book depth.
Regulated Exchanges
Exchange ⎊ Regulated exchanges, within the context of cryptocurrency, options trading, and financial derivatives, represent platforms subject to oversight by governmental or self-regulatory bodies, ensuring adherence to established rules and legal frameworks.
Regulatory Requirement
Compliance ⎊ Regulatory requirements are mandatory rules and standards imposed by governmental bodies and financial authorities to govern market activities, particularly in the cryptocurrency derivatives sector.
Best Price
Execution ⎊ Achieving the best price signifies optimal trade execution where the realized price aligns most closely with the prevailing market quote at the moment the order is placed.
Best Bid
Order ⎊ In cryptocurrency derivatives and options trading, the best bid represents the highest price a buyer is currently willing to pay for an asset or contract.