The National Market System (NMS) is a regulatory mechanism that governs the operations of

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

trading in the United States. Its primary focus is ensuring transparency and full disclosure regarding

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

price quotations and trade executions. It was initiated in 1975, when, in the

Securities Acts Amendments of 1975 The Securities Acts Amendments of 1975 is a U.S. federal law that amended the Securities Act of 1933 and the Securities Exchange Act of 1934. It was enacted by the 94th United States Congress and signed into law by President Gerald Ford on June 4, 1 ...

, Congress directed the

Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...

(SEC) to use its authority to facilitate the establishment of a national market system. The system has been updated periodically, for example with the

Regulation NMS Regulation National Market System (or Reg NMS) is a 2005 US financial regulation promulgated and described by the United States Securities and Exchange Commission, Securities and Exchange Commission (SEC) as "a series of initiatives designed to mod ...

in 2005 which took into account technological innovations and other market changes.

History

In 1972, before the

(SEC) began its pursuit of a national market system, the market for securities was quite fragmented. The same stock sometimes traded at different prices at different trading venues, and the

NYSE The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...

ticker tape did not report transactions of NYSE-listed stocks that took place on regional exchanges or on other over-the-counter securities markets. This fragmentation made it difficult for traders to comparison shop. In 1975, in the

, Congress directed the SEC to facilitate the establishment of a national market system for securities. The SEC was also directed to work with self-regulatory organizations in planning, developing, operating, or regulating a national market system. The responsibility of the National Market System is to ensure fair market competition, efficient order execution, transparency in price quotations, best-price execution, and direct matching of buy and sell orders. In 2005, the rules promoting the National Market System were updated and consolidated into

. The primary

self-regulatory organization Self-regulation may refer to: *Emotional self-regulation *Self-control, in sociology/psychology *Self-regulated learning, in educational psychology *Self-regulation theory (SRT), a system of conscious personal management *Industry self-regulation, ...

regulating member

brokerage firm A broker is a person or entity that arranges transactions between a Purchasing, buyer and a sales, seller. This may be done for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller or as a buyer b ...

s and exchange markets until 2007 was the

National Association of Securities Dealers The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...

(NASD). In 2007 the NASD and

member regulation group combined into the

Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...

(FINRA). Since 2007, the National Market System has been primarily managed by FINRA and

Nasdaq The Nasdaq Stock Market (; National Association of Securities Dealers Automated Quotations) is an American stock exchange based in New York City. It is the most active stock trading venue in the U.S. by volume, and ranked second on the list ...

System components

Overview

The National Market System includes and regulates all the facilities and entities which are used by broker-dealers to fulfill trade orders for securities. These include: *Major

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...

s, such as

New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...

and

. *A national central securities depositary for book-entry transfers (

Depository Trust Company Depository Trust Company (DTC), founded in 1973, is a New York City, New York corporation that performs the functions of a central securities depository as part of the US National Market System. DTC annually settles transactions worth hundreds ...

pursuant to Article 8 of the

Uniform Commercial Code The Uniform Commercial Code (UCC), first published in 1952, is one of a number of uniform acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through U ...

of New York State). *A depositary nominee ( Cede and Company) to retain custody of stockholder rights with respect to immobilized jumbo stock certificates. *A Proxy Ballot processing organization ( Broadridge). *Intraday clearing corporations which act as a central counterparty for continuing securities settlement by facilitating novation of settlement obligations to themselves and offsetting opposing obligations (known as netting or clearing). These organizations include FICC, NSCC, etc. *The facilities which operate the national price quotation system.

Major exchanges

. The exchange platform is owned by The NASDAQ OMX Group, which also owns the OMX stock market network and several other U.S. stock and options exchanges.

Self-regulatory organizations

(FINRA) *

Municipal Securities Rulemaking Board The Municipal Securities Rulemaking Board (MSRB) is a United States self-regulatory financial organization that writes investor protection rules and other rules regulating broker-dealers and banks in the municipal securities market. This includ ...

(MSRB)

Federal regulators

Regulators of the US dollar: FDIC, OCC, FRBG, and FOMC

The

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is a State-owned enterprises of the United States, United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was cr ...

, the Office of the Comptroller of Currency, the

Federal Reserve Board of Governors The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the mo ...

, and the

Federal Open Market Committee The Federal Open Market Committee (FOMC) is a committee within the Federal Reserve System (the Fed) that is charged under United States law with overseeing the nation's open market operations (e.g., the Fed's buying and selling of United Stat ...

all together impact the payment systems used for settlement on securities markets, both directly by regulations and indirectly via monetary policy which affects the value of the dollar.

Regulators of securities

The

Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an Independent agencies of the United States government, independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures contract, fut ...

(CFTC) is an important regulator for commodities futures and options. The

U.S. Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...

(SEC) is the most important federal regulator of corporate stocks, as well as other securities.

National ticker tape services

One of the most important elements of the National Market System is that all qualified trades are reported onto a consolidated system.

Clearing corporations

Depository Trust & Clearing Corporation The Depository Trust & Clearing Corporation (DTCC) is an American financial market infrastructure company that provides clearing, settlement and trade reporting services to financial market participants. It performs the exchange of securities ...

National Securities Clearing Corporation The Depository Trust & Clearing Corporation (DTCC) is an American financial market infrastructure company that provides clearing, settlement and trade reporting services to financial market participants. It performs the exchange of securities ...

* Fixed Income Clearing Corporation *

Options Clearing Corporation Options Clearing Corporation (OCC) is a United States clearing house based in Chicago. It specializes in equity derivatives clearing, providing central counterparty (CCP) clearing and settlement services to 16 exchanges. It was started by ...

Settlement facilities

*DTC Screen *

Fedwire Fedwire (formerly known as the Federal Reserve Wire Network) is a real-time gross settlement funds transfer system operated by the United States Federal Reserve Banks that allows financial institutions to electronically transfer funds between its ...

*DRS & FAST

Custody system

* Cede and Company * Broadridge

References

{{Presidency of Gerald Ford Stock exchanges in the United States