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Tim Quast
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We're All HFTs Now

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February 1, 2001

SEC Study Claims Nasdaq Too Pricey

By Staff Reports

In a conclusion that was challenged, a recent Securities and Exchange Commission study claims that spreads are "significantly" larger on Nasdaq than the NYSE on retail trades of under 500 shares.

"We do have several concerns about the report methodology that we have communicated to the SEC," said Richard Ketchum, president of Nasdaq. The SEC report finds that small retail trades have effective spreads that "are from 5.7 to eleven cents per share wider than those for matched NYSE stocks."

Ketchum argues that the SEC's criterion is too narrow. There is "no single all-encompassing measure of execution quality," he said. For example, he claimed that Nasdaq's transparency, liquidity and speed of execution are exemplary. Ketchum also questioned some of the techniques of the study.

"Company comparisons," he said of the report, "were not always apples to apples." Nasdaq companies tend to be younger than NYSE companies, he added. However, the study also found that Nasdaq execution times are faster than on the NYSE - somewhere between nine and 18 seconds. SEC Chairman Arthur Levitt said the study documents the shortcomings in both markets.

"For Nasdaq," said Levitt, "it confirms a challenge it faces and quantifies what most traders freely acknowledge - the ability to trade inside the best displayed quotes is substantially limited. For the NYSE, it sheds further light on the time it takes incoming orders to interact with trading interest on the floor - time its customers have long pressed this market to reduce."