what is the national market system nms 
the national market system nms promotes free market transparency by regulating how all major exchanges disclose and execute trades it is the system for equity trading and order fulfillment in the u s that consists of trading clearing depository and quote distribution functions the nms governs the activities of all formal u s stock exchanges and the nasdaq market understanding the national market system nms the national market system which was created by the securities acts amendments of 1975 is overseen by the national association of securities dealers nasd and nasdaq the nms governs exchange based trading such as on the new york stock exchange and otc trading on the nasdaq for practical purposes the nasdaq is considered an exchange even though the negotiations occur directly among market markers to facilitate the fair distribution of information the nms requires that exchanges make bids and offers ask price available and visible to both retail and institutional investors the advantages are an increase in liquidity and better prices however the system makes it difficult for institutions and large investors to execute large trades unnoticed some people argue that this visibility has pushed such trading off exchange fueling the expansion of private exchanges called dark pools on december 9 2020 the securities and exchange commission sec adopted new rules intended to modernize the infrastructure for the collection consolidation and dissemination of market data for exchange listed national market system stocks among other adopted rules the sec has updated and expanded the content of nms market data read more about these new rules here nms vs other otcnasdaq is the highest of four levels of over the counter otc trading where companies must meet specific criteria of capitalization profitability and trading activity also nasdaq provides more comprehensive intraday trading information that is available for the lower levels of otc stocks information includes last sale prices daily high and low prices cumulative volume and bid and ask quotes here market makers must report actual transacted prices and share sizes within 90 seconds of the transaction this requirement contrasts with the non real time reporting for non nms lower tier otc stocks the nasdaq while still a decentralized system for over the counter stock trading is a virtual exchange with all the regulations requirements and safeguards that come with clearing houses other otc markets have considerably fewer rules and safeguards otc markets break down into three tiers called the otcqx otcqb and pink sheets listing requirements decrease with each level also all of these markets are less stringent than exchanges covered by the national market system regulation national market system reg nms the securities and exchange commission sec saw a need to strengthen the nms and account for changing technology in 2005 they issued the regulation national market system reg nms which contains four main components probably most important of these rules was the order protection or trade through provision trade executions are provided at the best price no matter where that lowest price is available critics complained that it requires traders to transact on a trading venue that had the lowest price even though they would prefer doing business on the site with the fastest execution or the best reliability the feeling was that it would result in worse outcomes for institutional orders with all costs factored in 