European Best Bid and Offer (EBBO): What It Is, How It Works

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Updated March 06, 2024
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What Is European Best Bid and Offer (EBBO)?

European Best Bid and Offer (EBBO) is a regulatory mandate that brokers provide current best prices available for buying or selling financial instruments. EBBO is the European equivalent of the National Best Bid and Offer (NBBO) in the U.S.

On any exchange, a series of price levels appear for both the buy- and sell-side market. The EBBO represents the best price that is available; the lowest price for a buy or the highest price for a sell. The EBBO continually updates the prices so the market participants have fair access to the best prices to transact trades.

Key Takeaways

  • European Best Bid and Offer (EBBO) is a regulatory mandate in Europe that requires brokers to provide the current best prices available for buying or selling financial instruments.
  • EBBO is the European equivalent of the National Best Bid and Offer (NBBO) found in the U.S.
  • The EBBO represents the best price that is available; the lowest price for a buy or the highest price for a sell.
  • With the advent of electronic trading, there have been many companies that offer software allowing adherence to EBBO.
  • With the release of the Markets in Financial Instruments Directive (MiFID) II in 2018, new regulatory parameters were put in place to further regulate financial markets and protect investors, strengthening EBBO.
  • The legislation of MiFID II primarily focuses on dark pools and high-frequency trading (HFT), creating regulations intended to safeguard market participants.

Understanding European Best Bid and Offer (EBBO)

The Committee of European Securities Regulators, the forerunner of the European Securities and Markets Authority (ESMA), had the following definition: "The European Best Bid price is the highest binding bid (or buy) price available in the central limit order books of the regulated markets and MTFs (multilateral trading facilities) contributing to the determination of the EBBO. The European Best Offer price is the respective lowest offer (or sell) price. Thus the EBBO will always deliver the tightest spread available in the contributing trading platforms." Thus, EBBO guarantees that market participants have access to the best available prices at any given time.

The European Securities and Markets Authority (ESMA) monitors and enforces the European Best Bid and Offer (EBBO) regulations. In the United States, the Securities and Exchange Commission (SEC) enforces the National Best Bid and Offer (NBBO).

Where EBBO is supported on a trading platform, market participants' trade orders will be filled at or better than the EBBO price for a given trading instrument. Because electronic trading has become the most prominent way investors and traders access the financial markets, many software companies have designed and released products that traders can use to ensure they are adhering to EBBO. Companies that offer this service include Nasdaq, Iress, and Exegy.

These systems typically aggregate information across all financial markets, including exchanges and MTFs, providing a trader with a unified view of liquidity for any asset in real-time, allowing them to provide clients with the lowest or highest price for a buy or sell order, respectively.

European Best Bid and Offer (EBBO) and MiFID II

Following the market mayhem of the financial crisis, ESMA decided it was necessary to implement new rules to create fairer, safer, more efficient, and more transparent markets for participants. The financial crisis exposed some holes in the first set of Markets in Financial Instruments Directive (MiFID) rules. MiFID II, the second set implemented in January 2018, imposes stricter regulations on dark pools and high-frequency trading (HFT) so that EBBO is available for all traders on a level playing field.

Before coming into effect in 2018, in 2017 it was estimated that dark pools accounted for a little under 10% of market share trading. Part of implementing MiFID II was to put a cap on the share of trading for equity and equity-like instruments via dark pools. The goal was not to stop dark pools but to bring some regulation around the trading in an area that lacked pre-trade transparency. As such, the volume of a stock trading in a dark pool is limited to 8% of the total volume traded over a 12 month period.

Article Sources
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  1. Committee of European Securities Regulators. "Waivers from Pre-Trade Transparency Obligations Under the Markets in Financial Instruments Directive (MiFID): Updated." Page 3.

  2. European Securities and Markets Authority. "About ESMA."

  3. U.S. Securities and Exchange Commission. "SEC Adopts Rules to Modernize Key Market Infrastructure Responsible for Collecting, Consolidating, and Disseminating Equity Market Data."

  4. Nasdaq. "Smart Order Routing."

  5. Iress. "Iress Develops New Feed-Handler for Pan-European Exchange Equiduct."

  6. Exegy. "European Markets."

  7. European Central Bank. "Occasional Paper Series. Dark Pools in European Equity Markets: Emergence, Competition, and Implications." Page 15.

  8. European Central Bank. "Occasional Paper Series. Dark Pools in European Equity Markets: Emergence, Competition, and Implications." Pages 3, 15.

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