17.6.2. NMS Quotation Access and Disclosure: Regulation NMS
The SEC also used its authority to establish a number of access and disclosure rules to govern trading activities on the National Market System. In 2005 it consolidated many of these rules into one piece of legislation called Regulation NMS.
In doing so, it defined a new term to clarify the scope of its rules. An NMS security is an exchange-listed equity security that may be traded either on an exchange or off an exchange, including Nasdaq securities and those traded in the third market. An NMS security does not include debt securities, futures, or open-end mutual funds.
Regulation NMS requires market makers to display a customer limit order that is better than their current best quotes within 30 seconds for an NMS security, including the price and size of the order. It also requires market centers to publish standardized, monthly reports concerning their order executions. Each calendar quarter, broker-dealers must report and make publicly available their routing of non-directed orders in NMS securities during that quarter.
Member firms must route customer orders to the market that has the best available price. Market makers or exchanges may pay members to route their orders to them when more than one market displays the same price, but the member must alert the customer on the trade confirmation. A member firm must inform all new customers whether it receives payment for order flow, and it must provide a detailed description of the type of payments.
Regulation NMS requires market centers to provide equal electronic access to members and nonmembers alike. For example, the NYSE cannot offer faster order execution to its own members. Access fees for a market center must also be equitably priced.
Trading center