What is Consolidated Display?
The consolidated display is something important in the electronic trading of stocks and other securities. It means showing specific required information all together in one place. This is done according to rules and laws about trading.
The consolidated display must show the best prices people want to buy and sell a stock for. These are called the national best bid and offer prices, or NBBO for short. It shows the best prices from all the country’s different stock exchanges and markets.
Besides the best prices, the consolidated display has to show other key information too:
Other Required Information
- The number of shares available at those best prices. This lets traders know how many shares they can buy or sell at the NBBO prices.
- The stock ticker symbol. Each stock has a unique symbol of a few letters.
- Information on the most recent trades of that stock. This includes the price, number of shares, and which market it traded on.
Having all this information together in one place is meant to help traders. They can quickly see the best prices and latest trades. This is important in the fast world of electronic trading today.
Why Consolidated Display Matters
Stock trading today happens on many different exchanges and electronic markets. Each exchange might have different prices and numbers of shares available. This can make it hard for traders to know if they are getting the best deal.
The idea of the NBBO and consolidated display is to fix this problem. No matter which exchange a stock trade happens on, the buyer or seller should get a price at least as good as the best price shown on the consolidated display. It makes trading more fair for everyone.
Regulation NMS
The rules requiring consolidated display come from a law called Regulation NMS. NMS stands for “National Market System”. It was passed in 2005 by the Securities and Exchange Commission (SEC), which is in charge of regulating stock markets.
One key part of Regulation NMS is called the “Order Protection Rule”. This rule says that trades have to happen at prices equal to or better than the NBBO on the consolidated display. So if the display shows a best offer price of $20 for a stock, no one is allowed to sell it for more than $20 on any exchange.
Another part of Regulation NMS says that each stock can only have one NBBO and consolidated display. All the exchanges have to send their prices to a central system, which figures out the overall NBBO and sends that data out to be displayed. This makes sure everyone sees the same information.
How Consolidated Display Works
Behind the scenes, putting together the consolidated display is a big effort. It takes a lot of computers and high-speed networks. Here is a simple explanation of how it works:
- Each stock exchange has its own computer systems that keep track of all the orders to buy and sell stocks at different prices.
- The exchanges are required by Regulation NMS to constantly send their best bid and offer prices for each stock to central data systems. These are called Securities Information Processors, or SIPs.
- The SIPs collect all the price data coming in from the exchanges. They use fast computer programs to continuously figure out the NBBO – the single best bid and offer prices across all markets.
- The SIPs send out this official NBBO data, along with the other consolidated information, to all the financial companies and data providers that need to display it. This has to be done very quickly, within milliseconds.
- The financial companies and data providers take the consolidated data from the SIPs and show it on computer screens and terminals used by traders and investors all over the country. This is the public consolidated display.
So in the end, when you look at a screen showing stock quotes and trades, the key data is coming from the SIPs and their consolidated information. The process of collecting and distributing this data goes on non-stop every trading day.
Making Consolidated Display Faster
In recent years, some people have argued that the SIPs are too slow for today’s super fast electronic markets. By the time the SIP data gets to traders, the prices may have already changed.
To help solve this, the SEC has approved a new plan to make the collection and distribution of consolidated data faster. Instead of just two central SIPs, there will be many competing consolidators collecting and sending out the data. The exchanges will also be allowed to distribute the data directly. This is meant to create competition to provide the data as quickly as possible.
These changes are still being rolled out. But the goal is to ensure that the consolidated display remains a reliable and real-time view of the market in an age of ever increasing trading speeds.
The Importance of Consolidated Display
Having a public consolidated display is important for keeping markets fair and transparent. Here are some key reasons why it matters:
Helping Smaller Investors
Big professional trading firms often pay a lot of money to get sophisticated data feeds straight from the exchanges. But small investors trading through brokers usually don’t have access to these expensive direct feeds.
Instead, they rely on the consolidated display provided in their broker’s trading software or financial websites. Without this public display of the NBBO and latest trades, it would be much harder for them to know if they are getting good prices on their trades. The consolidated display helps level the playing field for these smaller traders.
Ensuring Best Execution
Brokers have a duty to get the best possible prices for their clients’ orders. This is called “best execution”. The NBBO on the consolidated display serves as an important benchmark for best execution.
A broker should not execute a client’s trade at a worse price than the current NBBO. If they do, they have to have a very good reason, or they could get in trouble with regulators. By creating a single official NBBO, the consolidated display makes it easier to hold brokers to this best execution standard.
Market Oversight and Surveillance
Regulators like the SEC watch over the markets to make sure everything is running smoothly and fairly. The consolidated display makes this easier by providing one official record of stock prices and trades across all markets.
If there was no consolidated display, it would be much harder to track what is happening in the market as a whole. Suspicious trading activity could be hidden by spreading it out over many exchanges. With consolidation, regulators have a clearer overall picture for monitoring the health and integrity of the market.
