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The old line brokerage houses traded on information, so they had every incentive to keep as much of that information to themselves as they could. Proprietary information gave them value. They knew something that you did not know, so you needed them. You couldn't live without them! |
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Now, all of that has changed because, for every kind of information need, a group of enterprising businesspeople took on the task of getting the information to the public. Without their efforts, and their successes, there would be no Sixth Market. |
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Securities trading in the United States is overseen by an extensiveand quite effectivecollection of regulators. A brief, and not at all comprehensive, description of the regulatory system would be: |
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The Securities Exchange Commission (SEC) is the ultimate power. It has been charged to carry out various laws passed by Congress. |
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The NASD is an SRO (self regulating organization): that simply means that it creates the regulations that govern securities transactions. These regulations must comply with the laws, and are subject to SEC approval. |
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The exchanges (NYSE, Nasdaq, et al) set specific regulations regarding trading on their specific exchanges. |
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The State Securities Boards oversee securities trading in their respective states. |
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Once an individual had one's electronic capabilities in place, and had access to all necessary information, one was still not on a "level playing field" with the professional traders. |
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Until 1997, the professional trading firms still held very specific trading advantages over the individual. The most important of these was in the area of price disclosure. Market making firms were not required to disclose limit orders that were above the posted best bid or below the posted best offer. In other words, if the best bid on DELL was 48, but a market marker had an order to buy 10,000 shares of DELL at 48 1/8, he could reasonably predict that the price for DELL was going up. The individual did not have that information, and consequently was at a disadvantage. |
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As part of the Actual Size Rule in 1997, these improved prices were required to be exposed to the public. The regulators also took firm |
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