The Securities and Exchange Commission voted yesterday to take a tiny step toward making securities markets more competitive.
In a unanimous vote, four SEC commissioners issued an order which requires major stock exchanges and the National Association of Securities Dealers to establish a two-way communication system that will provide for more competition in orders for a limited class of stocks, but it gave them over a year in which to make it fully operative.
The fifth commissioner, John S.R. Shad, who will become chairman next month, said he would abide by the decision, according to Acting Chairman Philip A. Loomis Jr.
SEC officials called the step "a critical event in the development of a national market system, which will address market fragmentation, reduce pricing inefficiencies, enhance the ability of a brokerage firm to obtain best execution of its customers' orders and promote the type of competitive markets structure, which a national market system was designed to achieve."
Essentially, a national market system, operating through a computer network, would put together the largest number of buyers and sellers instead of keeping them segregated in different types of exchanges. What the commission did yesterday was a small step toward that.
Commissioners, showing a measure of impatience, noted that the stage for such a system was set in 1975 when Congress enacted amendments to the Securities Act aimed at establishing a national market.
"The commission has for nearly six years worked patiently with industry participants to fulfill the purposes of the '75 amendments," said Commissioner John R. Evans. "Significant progress has been made, but the basic goals of the amendments have not been achieved."
Evans recalled that in January 1978 the SEC had set forth its views about steps that should be taken during that year, including linking all markets so that any broker or dealer could route orders for the purchase or sale of securities from its office to any qualified market.
"In fact, the commission stated that it would mandate such systems, if necessary, to assure prompt development," Evans said. "More than three years have now elapsed, and in the most lenient terms that cannot be considered prompt," he said.
The national securities exchanges which participate in the Intermarket Trading System (which links them with each other) and the National Association of Securities Dealers Inc., which represents dealers in over-the-counter stock, have until June 15 to set a timetable for complying with the order. By March 1, 1982, they must have established at least a pilot program covering the 30 most active stocks. The system must be fully implemented by Sept. 1, 1982.
The system would cover only a certain class of stocks, dubbed 19c-3 stocks.These are stocks newly listed on an exchange, which exchange members may not be prohibited from trading outside the exchange. A rule establishing that class of stocks, an experiment in broadening competition, was proposed in April 1979.
The commission's action yesterday allows that experiment to go forward by making sure information about such stocks is conveyed both ways as rapidly as possible. Generally, the exchanges opposed the order, and NASD favored it.