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May 10, 2006

Nasdaq's Print Facility Draws Critics: TRFs for Everyone?

By Gregory Bresiger

Nasdaq critics have also complained that Nasdaq's existing ACT trade reporting system will unjustly generate tens of millions of dollars for the new exchange. They have argued that the printing of trades is not worth the amount of money Nasdaq would obtain through the TRF.

Nevertheless, Nasdaq officials, in filings and public comments, have repeatedly argued that these trade reporting revenues are not new. They already earn and receive these revenues.

Concannon, the Nasdaq official defending the TRF, said this is a business that Nasdaq already has.

"There's no new windfall. This is a business we have conducted through the NASD for some 35 years," he added.

In a recent quarterly filing, Nasdaq's net market data revenue, which it lists as market services, was $31.5 million on Nasdaq gross revenue of $220.4 million and net revenue of $130.6 million. That number excludes variable costs such as rebates and brokerage fees.

Those backing the TRF plan have argued again and again that the plan as now structured does not represent a violation of any securities laws.

A Nasdaq critic, who is also an official of a rival exchange that is trying to block the TRF plan, concurred that multiple TRFs may be the result of this regulatory fight.

For Everyone

"If they (Nasdaq) ever get this TRF, then we all are going to want this. And if we all get this kind of deals, it will drive down the price that trade reporting facilities can charge to zero or almost zero," the Nasdaq critic told Traders Magazine.

Here was a point on which defenders of the TRF and opponents, who have often traded sometimes-bitter charges in the press, actually agreed.

Some TRF defenders have taken a so-what' attitude on this issue. Indeed, they conceded a price war could break out. But they argue that wouldn't be bad because investors would be the winners. Nevertheless, one key lawmaker questioned if numerous TRFs would be a good thing (See sidebar).

Defenders of multiple TRFs have also emphasized that the Nasdaq exchange application stipulates that the TRF is not exclusive, so any exchange can follow Nasdaq's lead. This is a point that some in the trading industry are already acting on.

Clearly, supporters of the TRF are betting that the SEC is moving toward allowing multiple NASDs, or registered securities associations. They are building their case on one notion: Several exchanges have, or are moving toward, having print facilities similar to Nasdaq's ACT system.

Indeed, the Chicago Stock Exchange has proposed its own TRF (See Washington Watch item). National Stock Exchange officials were said to have verbally asked the NASD for "the same deal as the Nasdaq deal," one industry source told Traders Magazine. National Stock Exchange officials didn't return phone calls.

Another industry source, who has criticized the NYSE in the past, suggested that "before all of this is over I bet you that the NYSE will be putting in for its own trade reporting facility."