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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February 16, 2007

Amex Limits Specialists' Commission Charges

By Nina Mehta

The American Stock Exchange is reining in a few rogue specialist firms whose commission practices hurt the exchange.

In January the exchange limited the ability of specialists to charge customers commissions. Under the new rules approved by the Securities and Exchange Commission, specialists are now prohibited from charging commissions for off-floor orders sent to them electronically, unless those orders require special handling. They can also no longer charge for orders that are resident on their books for under two minutes.

In mid-2006, a handful of specialists began charging for market or near-market orders. "We were losing business and other specialists were hurt," says Amex chairman and chief executive Neal Wolkoff.

Customers didn't know whether or not they would be charged commissions for certain transactions or what their overall execution costs would be. Consequently, they held back order flow. Amex lost about 10 percent of its equities volume in the latter half of last year.

"We could not let individual businesses counteract the pricing of the exchange as a whole," Wolkoff says. "This new rule brings clarity to the exchange regarding our cost structure."

The New York Stock Exchange in December prohibited specialist firms from charging commissions in their specialty securities, including exchange-traded funds. Previously, specialists couldn't charge commissions for orders that remained on their pad for under five minutes.

Wolkoff says most orders sent to Amex are executed within two minutes or are canceled by customers.

Amex specialists don't charge commissions for executing ETFs, although some have fees for cancellations. The exchange is in the process of getting SEC approval to ban that practice.