SEC Finds Compliance Failures in Displaying Customer Limit Orders

May 2000

SEC FINDS COMPLIANCE FAILURES IN DISPLAYING CUSTOMER LIMIT ORDERS

On May 7, 2000, the SEC's Office of Compliance Inspections and Examinations and the Office of Economic Analysis issued a report revealing widespread failure in compliance with the limit order display rule. This rule requires dealers that hold customer limit orders to execute them immediately or display them to the market.

The report is based on SEC staff inspections, which uncovered serious deficiencies in the self-regulatory organizations' surveillance and disciplinary programs since the adoption in 1996 of the limit display rule. The staff also found errors and delays due to manual handling of customer limit orders, problems with system programming to fully comply with display rule requirements, and incomplete and inaccurate data.

Preceding the report's release, the SEC held a roundtable to discuss the merits of improving the transparency of limit order books. While many of the participants support greater transparency, they urged the SEC to structure the information in a way that is useful to investors rather than flooding the market with additional information. Others expressed concern about maintaining customer anonymity.