Securities Markets:

SEC Actions Needed to Address Market Fragmentation Issues

T-GGD-93-35: Published: Jun 29, 1993. Publicly Released: Jun 29, 1993.

Additional Materials:


James L. Bothwell
(202) 512-8678


Office of Public Affairs
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Pursuant to a congressional request, GAO discussed securities market fragmentation and its effects upon stock prices and market efficiency. GAO noted that: (1) although the New York Stock Exchange (NYSE) remains the predominant market center for trading of NYSE-listed stocks, its dominance is being challenged; (2) between 1980 and 1992, NYSE share volume declined 6 percent, and its share of trades fell 20 percent; (3) the Securities and Exchange Commission (SEC) has encouraged increased market competition and fragmentation, which has also been facilitated by technological development; (4) SEC twice proposed, but did not implement, an order exposure rule to require customer orders to be advertised to fragmented markets; (5) although the establishment of real-time quotes and last-sale reporting systems has improved investors' ability to obtain the best displayed price when trading, the lack of existing information or research has raised concerns over market fragmentation's effect on the overall market structure, investors' ability to obtain better prices than those displayed, and market liquidity; and (6) an efficient, competitive, and fair national market system is vital to U.S. interests.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: SEC will consider an order exposure rule in conjunction with its Market 2000 study.

    Recommendation: SEC should develop a strategy for periodically monitoring the effects of fragmentation. Such a strategy should include developing information on trends in the achievement of best price, the ability of markets to facilitate trading, potential widening in bid and ask prices, and the impact of emerging technology.

    Agency Affected: United States Securities and Exchange Commission

  2. Status: Closed - Implemented

    Comments: SEC has decided, as part of its Market 2000 study, to consider the issue of whether an order exposure rule is needed.

    Recommendation: SEC should consider, as part of its Market 2000 study, whether an order exposure rule is needed.

    Agency Affected: United States Securities and Exchange Commission


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