The testimony by market participants over the last several weeks offers some suggestions, such as broadening access to the system by which orders are routed between trading systems. However, the role of policymakers is to weigh the rationale for recommended practices and use regulatory policy to foster competition. There are other ways in which policymakers can facilitate the shift to a new equilibrium market structure through steps to make competition itself more effective. One area in which endeavors could well prove fruitful is enhancement of the transparency in markets. The SEC's request for comment on market fragmentation seeks suggestions to improve disclosures both by market centers and by brokers about the handling of orders and the execution of trades.
Transparency is a fundamental organizing principle of markets.
Buyers and sellers should be fully cognizant not only of the characteristics of goods being bought and sold but also of the costs and methods by which trading occurs. Only in this way will they be able to signal through their trading patterns the market venues that best fit their needs. Retail investors, in particular, should pay attention to costs other than commissions that may be buried in the contracts authorizing their transactions. Such costs could include delayed executions, failures to execute, or forgone profit if there is no opportunity for price improvement. Disclosure empowers investors to make explicit choices about those factors that affect the quality of trade executions and ultimately the returns on their investments.