Is fragmentation in the listed equity markets likely to increase with the elimination of off-board trading restrictions, such as NYSE Rule 390?
Fragmentation in the listed market is likely to increase with the repeal of Rule 390 but competing with an auction market gives quasi auction markets (ECNs) less of a margin for profit in the absence of the defining structured inefficiency of the Nasdaq dealer market. It is not a coincidence that the majority of ECN activity is Nasdaq related. There are a good number of listed securities that are currently free to trade but the economic incentive is not as great due to the innate efficiency of the auction market system. Make no mistake. As we stated before, the fragmentation of the market is not the result of an industry wide initiative to make markets more efficient; it is an attempt to take advantage of structured inefficiency where it has been allowed to exist.
