A quote rule is a rule enforced by some stock exchanges which requires market makers to publish quotations if these exceed 1% of their stock’s aggregate trading volume. Quotations must include the lowest offer made by the market maker to a customer and the highest bid made by a customer to the market maker.
The purpose of quote rules is to provide transparency in securities markets. Because quotations must be published, investors can compare offers from all market makers and bids from all other investors. This helps to prevent investors from being taken advantage of due to lack of information. It also helps to prevent brokers from using excessive bid-ask spreads.
Among other jurisdictions, the quote rule applies in the United States, where it must be upheld by all market makers. However, the U.S. quote rule does not apply to trades made within electronic communications networks (ECNs). Quotations of transactions made on ECNs only need to be published to participants of the ECN on which they are performed.
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