by William Lilley on October 6, 1976
by William Lilley, Thomas M. Lenard, Peter H. Lowry, Vaughn C. Williams and James C. Miller

The Council on Wage and Price Stability (Council) hereby submits its comments on regulations proposed by the Securities and Exchange Commission (SEC or Commission) which would require national securities exchanges to collect from their specialists, and national securities associations to collect from third market makers, quotations in eligible securities for dissemination to quotation vendors (see 41 FR 32856). The regulations would apply to securities listed on U. S. exchanges and would not apply to securities which are only traded over the counter. In addition to requiring exchanges and associations to make quotations available to quotation vendors, the regulations would also require exchanges to make the sizes of the quotations (i.e., the number of shares as well as the price) available if the specialists and market makers elect to make such sizes available for dissemination. The proposal would require quotations subject to the rule to be firm, with certain exceptions. That is to say, a specialist or third market maker would have to stand ready to execute a transaction in any amount up to the published quotation size (or, if no size is disseminated, a normal unit of trading, usually 100 shares) at a price at least as favorable to the buyer or seller as the published bid or ask quotation.

The Commission is of the view that a composite quotation system is a basic element of a national market system in securities. The development of a composite quotation system would be aided by adoption of the proposed regulations. Such a system would simultaneously supply quotes from the various markets in which a security is traded and would ensure that investors could obtain the best possible price for a security regardless of which market their order was executed in. Though efforts by private firms to develop such a system have been made and continue to be made, the Commission is of the view that the quality of quotation information being disseminated is not satisfactory and could be improved substantially. The problems referred to by the Commission include the lack of firm quotations, the lack of information as to quotation size, and the failure of information supplied to vendors to be updated promptly. The principal concern of the Commission is that, if the absence of a composite quotation system, buyers and sellers may not always be able to obtain the “best” price.

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