Regulation NMS
Quick definition
Regulation NMS (National Market System) is a set of rules established by the SEC to enhance the fairness and efficiency of the US securities markets. Implemented in 2005, it aims to promote market transparency, protect investors, and facilitate competitive trading practices across exchanges and trading venues.
What is Regulation NMS?
Regulation NMS consists of several key components that collectively enhance the functioning of the National Market System:
- Order Protection Rule: This rule ensures that investors receive the best available price when executing their orders, represented by the National Best Bid and Offer (NBBO), preventing trades from being executed at prices worse than the best quote. It effectively eliminates the ability to "trade through" better prices available on other trading venues.
- Access Rule: This provision improves access to quotations from various trading centers within the NMS. It mandates that exchanges provide fair access to their quotes and reduces access fees.
- Sub-Penny Rule: Regulation NMS stipulates that for stocks priced over $1, quotes must be provided in increments of at least one cent. This aims to standardize pricing and reduce confusion in the quoting process.
- Market Data Rules: These rules allocate revenues generated from market data to self-regulatory organizations to enhance the quality and accessibility of market information.
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