Definition of National Market System (NMS)

a concept embodied in the Securities Acts Amendments of 1975 with the goal of fostering greater competition among the stock exchanges and other participants in the U.S. markets. In furtherance of this concept, the American Stock Exchange, Boston Stock Exchange, Chicago Stock Exchange, Cincinnati Stock Exchange (now called the National Stock Exchange), New York Stock Exchange, Pacific Exchange , and the Philadelphia Stock Exchange developed the Intermarket Trading System. The NASD subsequently joined ITS. ITS is an electronic linkage among all of the registered national securities exchanges and associations that permits participants to route orders to the participant displaying the best price nationwide. The ITS Plan was filed with the Securities and Exchange Commission as a national market system plan under Section 11A of the Securities Exchange Act of 1934. The Commission approved the plan. A second industry group, the Consolidated Tape Association ("CTA"), has two plans: the Consolidated Tape Plan ("CT Plan") and the Consolidated Quotation Plan ("CQ Plan"), which provide, respectively, trade reports for listed securities and the current bid and offer from each participating market, as well as the national best bid and offer. The Consolidated Tape Plan is a national market system plan as well as a transaction-reporting plan. The CQ Plan is a national market system plan. In light of the many changes in the securities markets over the years, the ITS plan was amended in 2000 to expand the NASD's ITS/CAES (Computer Assisted Execution System) linkage to all listed securities. In 1998, the SEC adopted Regulation ATS (alternative trading systems) to provide a streamlined regulatory structure for ECNs that choose to be regulated as alternative trading systems rather than national securities exchanges, with the aim of integrating them into the NMS. In 2005, the SEC approved a sweeping plan, known as Regulation NMS, to modernize the regulatory structure of the U.S. equity markets. Regulation NMS covers the following areas: order protection, intermarket access, sub-penny pricing, and market data. It also updates the existing Exchange Act rules governing the national market system, and consolidates them into a single regulation. Two amendments were also made to the joint industry plans for disseminating market information.