National Market System

All the major securities markets in the U.S. — 7 stock exchanges and the NASDAQ Stock Market — are part of the National Market System (NMS), which Congress created in 1975 to ensure that individual investors benefit from competition, efficiency, and price transparency.

The NMS's Intermarket Trading System (ITS) links the exchange markets electronically, displaying all current bid and ask prices for each eligible stock. When the consolidated quote system (CQS) shows a better price at one market, trades are routed there automatically for execution.

NASDAQ market maker and ECN prices are displayed in the NASDAQ quote montage, so your broker can route orders electronically for best execution. That might be to the market maker or ECN with the best price, or one that promises to match the best price. NASDAQ's computer assisted execution system (CAES), which is linked to ITS, also gives market makers direct electronic access to specialists on the exchange floors to execute trades.

Faster is better

Another reason your order may be routed to one exchange rather than another may be if trades are regularly executed faster there — since the sooner the transaction takes place the less likely it is that the market price will have changed dramatically. All NMS market centers that trade securities — exchanges, market makers, and ECNs — must report trading speed every month when they disclose their quality-of-execution statistics.

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