The Commission suggests in its concept release that the existence of competing market centers, however, may have the effect of isolating orders and reducing the opportunity for interaction of all buying and selling interest in a particular security. We believe that vigorous competition, rather than regulation, quickly eliminates any perceived inefficiencies in our market structure. To the extent that any fragmentation effects exist in a competitive multi-dealer market, it is worthwhile to consider that we live in a world of trade offs. Benefits are associated with costs, rewards with risks. The Commission's efforts to improve the transparency of the Nasdaq market place in its order handling rules, for example, appear to be associated with lower liquidity and greater volatility.
Transparency is a worthy goal of any market, but so is liquidity.
Both are necessary to a properly functioning efficient market. But since more of one means less of the other, choices must be made to balance the two goals. We believe that the market structures proposed in the Commission's release would address the theoretical fragmentation issue by greatly limiting and perhaps eliminating any opportunity for a market maker to profit from orders by filling them from inventory. This would necessarily reduce and perhaps eliminate any incentive for market makers to compete for order flow. A similar result would surely follow from requiring grocers to fill their customers' shopping carts with inventory from a competing grocer.