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January 30, 2008

Nasdaq Boosts NYSE-Stock Rebate

By Nina Mehta

Two months after an aggressive pricing move by NYSE Arca in New York Stock Exchange-listed securities, Nasdaq goosed its rebate for Tape A securities.

In October, NYSE Arca increased its liquidity-provider rebate for NYSE-listed names to 25 cents per 100 shares, from 20 cents. That put its maker-taker pricing at 25/30, leaving it with a nickel spread, half of what it had been. The move came in a bid to chase Nasdaq, which has had great success in capturing NYSE-listed flow.

Nasdaq has now counterattacked. Starting this month, it will give its highest-tier customers a higher rebate for Tape A transactions. "The rebate is a key component in moving liquidity from one venue to another," said Brian Hyndman, senior vice president for transaction services at Nasdaq. Those customers will now get a rebate of 27 cents per 100 shares for providing liquidity. That's up from 25 cents. To maintain a 2-cent spread, Nasdaq will increase the take rate to 28 cents from 26 cents.

The 2-cent shift up the pricing scale makes Nasdaq's 27-cent rebate for Tape A securities the second highest in the industry for some of the most active players. The National Stock Exchange 30-cent rebate, which applies to everyone, is the highest. (Shortly after Nasdaq announced its changes, DirectEdge ECN increased its rebate for trading Tape A securities to 27 cents on its primary EDGX platform.)

Arca's rebate for Tape A is 25 cents for all comers-lower than Nasdaq's new highest credit, but higher than Nasdaq's rebate for those in its other volume-based tiers.

Nasdaq's pricing change is intended to appeal to active Tape A liquidity providers whose trading decisions are rebate-sensitive. "For any market with a material amount of market share, we now have the highest rebate for Tape A," Hyndman said. Nasdaq does not consider the take and route fees, both of which it increased, as vital as the rebate in influencing market share.

Nasdaq's matched market share in Tape A securities hit an all-time high of 19.6 percent in November, up from 19.3 percent in August, before BATS offered participants an inverted fee schedule for Tape A securities.

That one-month special produced the biggest monthly percentage-point decline in Nasdaq's matched Tape A market share. Since the beginning of 2006, Nasdaq's matched Tape A market share has increased in all but three months.

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