National Market System

The National Market System (NMS) is an essential term to know if you're entering the world of trading. In this glossary entry, we'll explore what it stands for, how it operates, and why it's significant for a trader.

Understanding the National Market System

The National Market System is a system established in the United States to facilitate trading and investing. In essence, it's a network that links different trading venues, such as stock exchanges, together to provide a unified, transparent, and fair market for all investors.

Origin of the National Market System

The birth of the National Market System was in 1975 when the Securities and Exchange Commission (SEC) introduced it. The catalyst for its origin was the growth in technology that allowed for electronic trading. The SEC wanted to ensure a market structure that is fair and transparent, promoting competition and efficient pricing.

How Does the National Market System Function?

The National Market System works by connecting various exchanges and other trading platforms. This connectivity ensures that an investor in one part of the country has access to the same information and prices as an investor in another part. The NMS aims at disclosing the best available bid and ask prices for securities so that investors can make more informed decisions.

Significance of the National Market System for Traders

In the world of trading, the National Market System plays an integral role. By promoting transparency, it ensures traders have all the necessary information at the right time to make informed trading decisions. Additionally, by providing equal access to prices and information across different geographical locations, the NMS aims to promote healthy competition, leading to fair and efficient pricing.

By understanding what the NMS is and how it functions, traders can be better equipped to navigate the markets confidently.