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1 1 (January 26, 2001)

handle is hein.crs/crsahkl0001 and id is 1 raw text is: Order Code RS20631 Updated January 26, 2001 The Central Limit Order Book (CLOB) Option for Linking U.S. Stock Markets Gary Shorter Specialist in Business and Government Relations Government and Finance Division Summary A central limit order book, or CLOB, is a policy option currently under consideration by the Securities and Exchange Commission. A CLOB is an electronic system that would link the various stock markets (exchanges, market makers, and alternative systems) in an attempt to correct some of the problems that have emerged because of the proliferation of trading venues in recent years. As envisioned by some, a CLOB could allow the centralized display of investors' offers to trade stocks which are listed on various stock exchanges. CLOBs also tends to be conceptualized as an order display device that would allow those who first submit a stock trade to receive execution priority over similar, but subsequent orders. CLOB detractors, however, say that it could impede innovation and subject U.S. stock markets to systemic risk. In the summer of 2000, the SEC abandoned the idea of imposing a CLOB. Background The idea of a Central Limit Order Book (CLOB) has been around the since the 1970s when the Securities and Exchange Commission (SEC) broached the idea and met opposition from stock exchanges. But, there are some new concerns over the issue of market fragmentation and the idea of a CLOB is receiving renewed interest as a possible antidote to it. Consider this illustration: A stock that you like is offered on your screen for $20.25. You don't want to pay that, so you give your discount broker an order to buy 500 shares at $20.125. Your bid pops up on the screen: it's now the highest in the market, and you figure it's only a matter of time. Then you see 500 shares trade at $20.125. Then another at the same price. And, another. Still, you don't get any stock. Then your broker buys 200 shares from another investor paying $20.1875, a smidgeon above your bid. The stock rallies, and your broker unloads the shares he bought. Frustrated, you cancel your first order and enter another with no preset limit. Five seconds later, your broker confirms you Congressional Research Service CRS Report for Congress Received through the CRS Web The Library of Congress