National Market System (NMS)
The SEC-mandated framework that links U.S. equity exchanges and trading venues to ensure investors receive the best available price.
What is National Market System?
The National Market System (NMS) is the regulatory framework established by the SEC under Regulation NMS (adopted 2005) that governs how U.S. equity markets interact to provide fair and efficient price discovery for investors. Its key rules include: the Order Protection Rule (requiring brokers to route orders to the venue displaying the best price), the Access Rule (preventing exchanges from charging excessive fees to access quotes), the Sub-Penny Rule (prohibiting quoting in fractions below one cent), and the Market Data Rules (governing how exchanges distribute quotes and trades). NMS connects major exchanges (NYSE, Nasdaq) with alternative trading systems and dark pools into a unified marketplace.
Example
Under the Order Protection Rule (Rule 611) of Regulation NMS, if Stock A is quoted at $50.00 on NYSE and $49.98 on Nasdaq, a broker receiving a sell order must route it to Nasdaq where the buyer is offering the better price ($49.98 = lower ask). Ignoring the better-priced venue to execute on a preferred exchange is a 'trade-through' violation prohibited by NMS.
Source: SEC — Regulation NMS