Nasdaq to Re-Focus PSX Exchange on ETFs
Traders Magazine Online News, March 12, 2013
Nasdaq OMX Group plans to re-launch its PSX exchange as a "better trading venue" for exchange-traded funds, notes and other related products, as early as next month.
The exchange will execute trades in all National Market System securities, but will give special incentives to retail and institutional investors to participate as well as special benefits to firms that register as market makers, committing to make continuous two-sided quotes on exchange-traded products.
Neither a filing with the Securities and Exchange Commission nor a Nasdaq official with its Transaction Services division describe the incentives that will be given to investors to place orders on PSX nor the benefits that will be provided market makers.
Nasdaq CEO Robert Greifeld at the October 2010 launch of PSX as a "price-size" exchange.
“The unique features that will make PSX compelling we can’t go into today,’’ the Transaction Services executive said Tuesday afternoon. “We are keeping that under our hats for a couple weeks.”
Nasdaq OMX PHLX, the formal name of the exchange, filed a document dated March 8, 2013, describing its plan to changeover PSX to an exchange that “in all material respects” has rules for handling buy and sell orders that mirror those at Nasdaq OMX’s other two exchanges.
These are the Nasdaq Stock Market, which handles about 16.5 percent of all equities trading in the United States, and Nasdaq BX, which has as its differentiating factor the payment of rebates to market participants who remove liquidity from its market.
The move to match rules among all three Nasdaq exchanges means that orders at PSX will be handled in what is known as price-time priority. This favors the speed at which orders arrive.
The move comes less than 18 months after PSX was created as a Price Size Exchange that would give priority to the size of an order over the speed of arrival.
Nasdaq OMX CEO Robert Greifeld at the time called this the “most fundamental change in market structure” since the launch of the all-electronic Nasdaq Stock Market itself in 1971.
But the idea that “size matters’' never took hold. In February, PSX accounted for three-fourths of one percent of total equities trading in the United States.
Exchange-traded funds have been one of the fastest-growing segments of equities trading. These are, in effect, mutual funds that have the added advantage of being able to be traded at any point during a trading session. The share prices as well as trades in mutual funds are set after markets close. ETFs also typically have lower costs than mutual funds, charging fees for trading in their shares, where mutual funds charge annual fees for managing their holdings.
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