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I don't understand why Rule 610 from Reg NMS was introduced: what was the problem with locked markets?

I have read that one of the issues is that it forced a market maker (say, from Nasdaq) who needed to buy a stock (and who had the obligation to provide the best possible price for a client) to go and "pick" the locking Sell Limit Order from the locking venue (say, Instinet) and pay the taker's fee. However, this would have been true for every time in which a competing ECN was posting an ask quote that was lower than the one posted by the market maker and not only when the markets were locked...

Am I missing something?

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The adopting release of Reg NMS http://www.sec.gov/rules/final/34-51808.pdf discusses the problem(s) they were looking to solve. That will provide the SEC's thought process.

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    $\begingroup$ Hi there, the document you linked was the first thing I read when trying to figure out why Rule 610 was implemented. Unfortunately, it only talks about what Reg NMS Rule 610 is trying to "promote" or "achieve" (more orderly markets, efficient access to quotations, market linkage, etc...) but it never actually explains why, for example, a locked or crossed market is bad. Also, I wouldn't really even expect this kind of report to address this issue in such detail (with examples) since its not what it was written for. $\endgroup$ – g_puffo Sep 24 '14 at 17:01
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Having locked markets is bad in the sense

  1. it freezes the price formation process. Ideally we would like to have a price on as much instruments as possible so that we know their value.
  2. it prevent investors to buy (or sell) it and thus adds frictions, transaction costs, etc. We would like to enable investors to buy or sell when they need/want, to let the offer and demand dynamic game to take place.
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