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January 30, 2008

NYSE Arca Targets Bigger Traders

By Nina Mehta

NYSE Arca, faced with declining market share in Nasdaq-listed securities, took a page from its rival's book on the pricing front.

The exchange restructured its pricing matrix by adding a new rebate tier for active customers providing liquidity in Nasdaq-listed, or Tape C, securities.

Those using Arca to trade a daily average of 30 million shares in Tape C securities, including 15 million shares in liquidity provided, can now qualify for a 24-cent-per-100-shares rebate for their Tape C volume. That's 4 cents higher than Arca's base rebate and a turnabout by NYSE Euronext execs, who recently cut Arca's take rate for Tape C names but decided against a higher rebate. Arca's new tier is 1 cent below Nasdaq's best rebate rate.

The base pricing on Arca for Tape C securities is a 20-cent rebate and a 25-cent take fee. "Customers can increase their rebate from 20 cents to 24 cents and continue to capture the best take fee for Tape C," said Colin Clark, vice president of strategic market analysis at NYSE Euronext. Arca did not tier its take fee, which is already lower than Nasdaq's. Nasdaq's Tape C take fee ranges from 26 cents to 30 cents, based on the customer's tier. Its rebate ranges from 25 cents down to 20 cents.

Arca's tiering gambit mirrors Nasdaq's. At Nasdaq, the highest tier applies to those traders either adding 35 million shares per day and taking or routing 55 million, or adding 25 million shares and taking or routing 65 million, in securities across all three tapes.

The next-highest tier is 20 million added and 35 million removed or routed. The base tier, whose pricing is a 20-cent rebate and 30-cent take fee, applies to everyone else.

Clark noted that "firms that already reach Nasdaq's highest tier can send their excess volume to us and pick up incremental economic benefits in our market." The new rebate tier also gives active players a "net-1-cent rate" on Arca, which they didn't previously have, Clark said. For some high-frequency traders, the spread between the take and rebate rates is important.

In addition, Arca's new pricing targets mid-size firms. Those who can't reach Nasdaq's 90-million-share tier across the three tapes "may be able to reach Arca's tier of 30 million for Tape C," Clark said.

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