National Best Bid and Offer (NBBO) is an important regulation in the financial markets that ensures investors receive the best possible prices when executing trades. The NBBO serves as a safeguard for investors by guaranteeing that all traded securities are being transacted at the best possible price based on the market conditions at that time.

The NBBO is calculated, displayed and disseminated by Security Information Processors (SIP). SIPs track the best bid and ask prices from multiple exchanges then take the best available (lowest) ask price and best available (highest) bid price and present it as the NBBO. This NBBO is then made available to all customers regardless of their location in the country. The U.S. Securities and Exchange Commission requires brokers to guarantee and execute trades for their customers at the NBBO quoted price, no matter what price the customer requested.

While the NBBO is a relatively straightforward price safety measure, traders should always be aware that the NBBO may not always reflect the most up-to-date data. This is due partially to delays in information transmission and processing times. As a result, trades that are executed on the NBBO may not meet investor price expectations, if they were to trade on the most current market data. For this reason, it’s important for investors to be aware of their trading timelines and market conditions in order to make informed decisions when trading securities.

In conclusion, the NBBO is an important instrument implemented by the SEC to ensure all investors receive the best possible prices when executing trades. While the NBBO usually meets the requisite for a fair market price, traders should be aware that the quotes may not always reflect the most up-to-date information, potentially leading to unsatisfactory trades.