19 Pages Posted: 30 Oct 2010
Date Written: October 14, 2010
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: Suggested Citation