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John Turney
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Foreign Exchange Infrastructure: Yesterday, Today and Tomorrow

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September 12, 2006

Nasdaq Revamps Listed Strategy of Accessing DOT Via BRUT

By Peter Chapman

The free ride is over. Nasdaq will end its policy of providing free access to the New York Stock Exchange's DOT order delivery system via its Brut mechanism this month. The program was a boon for Nasdaq in garnering share in NYSE-listed securities, but has become too costly to maintain.

Behind Nasdaq's decision is a move by the Big Board to start charging a uniform transaction fee across all of its access services. Previously, DOT access was free to members.

And as Brut was a broker-dealer member of the New York, it and Nasdaq benefited. Brut has been one of the top three providers of liquidity to the New York of late.

The policy has given Nasdaq an 8 percent market share in listed securities, as many of the traders using the service end up executing their trades on Nasdaq's books instead. The program is partly behind the recent drop in the New York's market share to below 70 percent, an unprecedented level.

But now Brut must pay $0.00025 per share just like every other NYSE member. To avoid losses, Nasdaq was forced to change its free-DOT policy.

Now, traders who use Brut to access DOT-after first scanning Nasdaq's books for fills in NYSE-listed securities-must pay a fee of $0.0002 per share. To ease the pain somewhat, Nasdaq has instituted a $60,000 monthly cap on those charges.

Also, to encourage more listed trading on its own books, Nasdaq has increased the rebate it pays to "liquidity providers." Those are traders who post limit orders on Nasdaq's books.

Previously, the rebate was $.0005 per share for firms that added 10 million shares of liquidity per day. Now that rebate is $0.0006.