This madness was based on a conceptual fallacy. ECNs really weren't broker-dealers; instead, they were exchanges and should have been regulated accordingly. Exchanges traditionally have charged their members fees for accessing exchange trading services. Persons who are not members can only obtain access to the exchange through the facilities of members. Confusing the broker-dealer and exchange models led to unanticipated consequences.
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Eventually, this road led to Regulation NMS. To level the playing field, all regulated participants--exchanges, ATSs and broker-dealers--were permitted to charge access fees to non-customers, but the amount that could be charged was capped. Among other things, this forced the transformation of the NYSE into a huge ECN forced to compete on a level playing field with other exchanges. It also led surviving ECNs to merge with exchanges or to register as national securities exchanges.
It is a nice conceit to imagine that competition spurs innovation, lower prices and increasing social welfare. But innovation and lower prices are not the only ways to compete, and some methods of competition do not increase social welfare. The flash order is an example of competition's dark side.
What is an ATS, what is an exchange? Who gets screwed? Chaos abounds from ill thought out market structure reform, it seems.