Market Fragmentation Is Bad
Traders Magazine, July, 2002 by Gregory Bresiger
Competition between market makers and ECNs for order flow is fine. But when competition becomes "regulatory arbitrage," then markets can be damaged as participants try to find the easiest market regulator, warns Robert Glauber, chairman and chief executive of the NASD.
In recent comments, he warned that there will be more intense competition among the Big Board, Nasdaq and ECNs for order flow.
"Competition, as such," Glauber said, "is a good thing. Fragmentation is not. It is even more clearly a negative thing when it encourages or leads to regulatory arbitrage."
Glauber said that competition based on liquidity, efficiency and depth of market were good things. But, when it is based on finding the easiest regulator, that causes more scandals.
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