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.

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May 31, 2003

Nasdaq Incentive For SuperMontage Users

By Peter Chapman

Nasdaq, in a bid to boost trading on SuperMontage, is eliminating a key charge on market makers.

As of June, Nasdaq will stop charging some dealers ACT reporting fees. This deal is designed to reward dealers for using Nasdaq's new trading platform. It is also intended to thwart the "unfair" tactics of a rival, according to Nasdaq.

The ACT, or Automatic Confirmation Transaction service, is used by market makers to report trades. It costs them 2.9 cents per side.

Trade reporting revenues are not insignificant for Nasdaq. In 2002, these comprised about 10 percent, or nearly $80 million, of Nasdaq's total revenues.

But SuperMontage, introduced last fall, hasn't produced the expected usage. That has led to big cost cutting measures as well as some legal steps to take market share.

The fee waiver is designed for heavy users: dealers executing an average of 10,000 trades per day on SuperMontage. The firms must also post at least 70 percent of their quotes and orders in SuperMontage. They must also report at least 98 percent of internalized trades.

Nasdaq made no bones about targeting the "unfair" tactics of the Cincinnati Stock Exchange. The CSE has circumvented an SEC ban on market data revenue sharing by "mutualizing" revenues with its members. That's what Nasdaq complained to the Securities and Exchange Commission in its application to waive the fees.

Nasdaq, because of its huge member base, says it is unable to implement a similar strategy.

"The only way to compete with an exchange that can single out firms to mutualize' with is to provide preferred pricing to its members that continue to support Nasdaq with their orders," Nasdaq said.