The Best Bid and Offer: A Short Note on Programs and Practices

19 Pages Posted: 30 Oct 2010  

Joel Hasbrouck

New York University (NYU) - Department of Finance

Date Written: October 14, 2010

Abstract

This note describes how to determine the best bid and offer (BBO) from the NYSE’s monthly TAQ data, the source that underlies most academic research. At a given point in time the best bid is the maximum bid, taken over the set of current bids posted by all venues. This value persists until one of the bids posted by any of the venues changes. Then the maximum is recomputed. The best offer is computed in a similar fashion. This differs significantly, however, from the BBO defined and computed in Wharton Research Data System (WRDS) documentation and sample programs distributed prior to October 2010. Furthermore, the BBO calculation relies on correct ordering of the quote records. Incorrect sequencing within a reporting exchange’s records is much more serious than incorrect sequencing between exchanges. This note explains these problems and makes some summary recommendations.

Keywords: BBO NBBO TAQ

JEL Classification: G20, C80

Suggested Citation

Hasbrouck, Joel, The Best Bid and Offer: A Short Note on Programs and Practices (October 14, 2010). Available at SSRN: https://ssrn.com/abstract=1699426 or http://dx.doi.org/10.2139/ssrn.1699426

Joel Hasbrouck (Contact Author)

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
MEC Suite 9-190, Mail Code 0268
New York, NY 10012-1126
United States
212-998-0310 (Phone)
212-995-4233 (Fax)

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