How shares are traded
8. Normal market size
Normal market size (NMS) is the minimum number of securities, as specified by the London Stock Exchange, for which a market maker is obliged to quote firm bid and offer prices.
NMS for each security is calculated quarterly and is based on 2.5 per cent of the security's average daily turnover in the preceding year. However, market makers are usually prepared to quote firm prices for volumes larger than the NMS.
Midco may have an NMS of 1,000, yet a market maker might be prepared to quote firm prices for volumes of, say, 3,000 offer and 3,000 bid. Your broker, on your behalf, should therefore be able to buy or sell up to 3,000 shares in Midco via that market maker at the prices quoted by that market maker, despite Midco's NMS of 1,000.
The market maker's quote will show on your broker's screen as 'Midco at 105 - 110 (3,000 x 3,000), ie the market maker is prepared to sell to your broker up to 3,000 shares at 110p or buy from your broker 3,000 shares at 105p.
If you wanted to buy or sell more than 3,000 shares, this may be possible, but you may have to pay rather more than 110p to get the shares, or accept rather less than 105p to sell the shares.
- Large companies tend to have high NMS figures.
This is because of their high level of liquidity. For example, HBOS's NMS is 75,000 shares, and about 5m of its shares are traded every day. You can be fairly sure that if you are buying 3,000 shares, the prices quoted are good. Your order isn't going to move the market.
- Small companies have lower NMS figures.
This is because their shares tend to be less liquid. However, you will see from the above that this doesn't necessarily mean that you'll be unable to purchase a number of shares larger than the NMS. Provided your requested trade is within the market makers quoted size, then you should be able to deal.
NetBenefit, an AIM stock, has an NMS of just 1,000.
If the market maker's quoted size is 3,000 x 3,000 and you want to purchase 2,000 shares, then you should be able to deal, even though your 2,000 shares exceeds the NMS.
If, on the other hand, you want to purchase 5,000 shares, (ie more than the market maker's quoted size) then you may find you cannot deal, or perhaps that you can deal but at a higher price than that quoted.