The Securities Acts Amendments of 1975 call for the development of a national market system for securities. Proposals designed to meet this requirement generally fall into one of two categories. The first envisions a network of conventional stock exchanges connected by electronic means (e.g., the Intermarket Trading System, or ITS). The second envisions a computer-assisted market mechanism that would replace the “auditory” trading arenas of traditional exchanges with one nationwide “visual” trading arena.
The New York Stock Exchange (NYSE) has asserted that a computer-assisted market mechanism could not handle the myriad orders currently handled on conventional exchanges. Within either arena, however, orders have no standing. Before any order can be executed, the agent must translate it into a bid or offer at a specific price. Thus, whether the trading arena is the traditional stock exchange floor or a computer-assisted market, it need not accommodate orders — only bids and offers.
One of the prime specifications of the ’75 Act is that the national market system enable brokers to execute investors’ orders in the best market. Under current NYSE rules, only the best bids and offers on the specialist’s book are broadcast to other exchanges and to the public. Furthermore, participants on the floors of traditional exchanges find it difficult to mix monitoring of ITS display screens with their trading and time consuming to execute an order on another exchange via ITS. In the computer-assisted visual trading arena, the best bid would always have the opportunity to meet the best offer.
The securities industry is understandably hesitant to accept alternatives that depart radically from the current system of exchange floors. Yet now is the time to find out, through experimentation, whether the visual arena is workable.