Locked And Crossed Markets

In a single centralized order book, the best bid can never equal or exceed the best offer — if it did, the two orders would simply trade against each other instantly. But modern equity markets are fragmented across a dozen or more exchanges and venues, each maintaining its own order book, and nothing forces those separate books to stay perfectly synchronized moment to moment. A locked market occurs when the best bid on one venue exactly equals the best offer on another (e.g. venue A's best bid is $50.00 and venue B's best offer is also $50.00). A crossed market is the more extreme version: the best bid on one venue is actually higher than the best offer on another (venue A bids $50.02 while venue B offers $50.00) — a state that would be an instant arbitrage if a single participant could see and act on both simultaneously.

These states aren't supposed to persist: regulation (in the US, Rule 610 of Reg NMS) requires venues to avoid deliberately locking or crossing the market, and in practice these situations are usually resolved within milliseconds as an arbitrageur or the exchanges' own systems act on the mispricing. But they do happen routinely for brief instants, especially during fast-moving markets, because each venue only directly controls its own book and there's always some tiny propagation delay for quotes to update everywhere.

Worked illustration: if venue A shows a best bid of $100.05 while venue B simultaneously shows a best offer of $100.03, that's a crossed market — any participant seeing both quotes could theoretically buy on B at $100.03 and sell on A at $100.05 for a $0.02 riskless profit per share, which is exactly the kind of fleeting opportunity that latency-sensitive market participants are built to capture before it disappears.