Transparency – US Rules
In the words of Arthur Levitt, “Even if brokers establish very clearly the investing objectives of their customers, brokers must be able to see the best prices in the market if they are truly to achieve best execution” (Arthur Levitt supra at 515).
Transparency impacts prices particularly trough the dissemination of limit orders that indicate the supply and demand for a security at a particular price. These orders allow investors to become price setters and to shape the prices of securities by the forces of competition.
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In 1997, the SEC enacted the Limit Order Display Rule. “It simply stated that dealers holding customer limit orders that are equal to or better then the market price must either execute the orders immediately or display them to the market” (Ibid at 516). In the view of Levitt, the Order Handling Rules that include the Limit Order Display Rule have reduced spreads by over thirty percent. A series of other rules, such as Rule 11Ac1-1 requiring dissemination of quotes, Disclosure of Order Execution and Routing Practices, Regulation NMS adoption of “Market Data Rules and Plan Amendments” contribute significantly to market transparency, though deeper transparency is needed. NASDAQ’s SUPERMONTAGE and the NYSE’s Open Order Book are important market steps toward achieving a transparent financial market.
