NBBO Calculation, or National Best Bid and Offer Calculation, denotes the process of identifying the most favorable available bid price (highest buying price) and the most favorable available ask price (lowest selling price) for a security across all relevant exchanges and trading venues.
Mechanism
In traditional markets, consolidated data feeds aggregate bid and ask quotes from various exchanges. Systems then employ algorithms to filter and sort this data, establishing the NBBO in real-time. For crypto assets, a similar principle applies, though it often involves aggregating data from numerous decentralized and centralized exchanges, which may lack a unified regulatory framework.
Methodology
Traders and market participants rely on the NBBO to achieve best execution, as it represents the most advantageous prices available. Its accurate and low-latency computation is crucial for algorithmic trading strategies and for demonstrating compliance with best execution obligations, though its application in the diverse and often unregulated crypto space presents unique data aggregation and latency challenges.
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