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The Structure of the US Equity Markets

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  • Marshall E. Blume

Abstract

In 1975, Congress directed the SEC to develop a national market system in which all orders to buy or sell equities would interact. A national market system abhors fragmentation and assumes that one market will best serve the needs of all investors. Such an assumption does not capture the realities of modern markets. Investors have different needs and different markets will develop to serve these needs. Markets are non anonymous, and in such markets, the very concept of “best price” is not defined. Fragmented markets are a natural result of competition. Within the US, the sharing of trade and quote information among markets helps to mitigate any deleterious effects of fragmentation. The markets of tomorrow will be global. In a global market, the SEC will have to give up its goal of a national market system and focus on other issues. For example, it will be a challenge to provide just the sharing of trade information across borders. Further, technology will allow a market center or order-gathering function to be located anywhere in the world. This threat of relocation will place constraints on US regulators, and global trading will make it more difficult for US authorities to regulate investment practices and to protect US investors.

Suggested Citation

  • Marshall E. Blume, "undated". "The Structure of the US Equity Markets," Center for Financial Institutions Working Papers 02-16, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Handle: RePEc:wop:pennin:02-16
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    File URL: http://fic.wharton.upenn.edu/fic/papers/02/0216.pdf
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    Cited by:

    1. Kalcheva, Ivalina & Smith, Janet Kiholm & Smith, Richard L., 2020. "Institutional investment and the changing role of public equity markets: International evidence," Journal of Corporate Finance, Elsevier, vol. 64(C).
    2. Chryssa Papathanassiou, 2012. "Central Counterparties and Derivatives," Chapters, in: Kern Alexander & Rahul Dhumale (ed.), Research Handbook on International Financial Regulation, chapter 11, Edward Elgar Publishing.

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