Commentary

Richard Repetto
Traders Magazine Online News

Why Do Exchanges Own Multiple Licenses? It's Not Hard To See, Look at the SEC

In this recent research note, Sandler O'Neill + Partners, L.P. Principal Richard Repetto examines why the public exchange operators hold multiple licenses and that rationale behind this phenomenon.

Traders Poll

As Bitcoin turns 10 year old this month, why are you not trading it or other crypto currencies?

I am trading it/them.

19%

Too volatile

38%

Issues surrounding custody and clearing

35%

Not enough block liquidity

8%

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December 1, 2002

Big Board's Unfinished Agenda' Is Under Fire

By John A. Byrne

Is Nasdaq as a trading market more efficient than the Big Board?

Some say the structures of both are broken but there is praise for Nasdaq.

"There is genuine competition now among alternative market structures on the Nasdaq, but there's a very large unfinished agenda in the listed market," argues David Whitcomb, an academic who studies market structure. "The order handling rules and decimalization were never fully applied on the listed markets," adds this Quixotic founder of an alternative trading system.

When Automated Trading Desks, his firm in Mr. Pleasant, South Carolina, sends a limit order to the NYSE, it is not necessarily displayed automatically in the public quote, according to Whitcomb.

"We may put in a limit order to buy 1,000 shares at 32 dollars and 11 cents but that does not automatically establish a new bid if, say, the NYSE quote was 32.10 to 32.14," he says. The problem, as he sees it, is that the NYSE specialist has 30 seconds to respond to orders because of the Intermarket Trading System arrangements. "Even after that, it is a judgement call on the specialist's part whether to display the limit order," he adds.

On the Nasdaq, meanwhile, sellside transactions costs have plummeted. At ATD, costs have tumbled fivefold since the introduction of the order handling rules, Whitcomb says. And because of networked technologies, as well as more competitive limit order trading, arbitrage by the pros tends to eliminate the worst effects of fragmentation, Whitcomb contends.