Nasdaq's new fee schedule raises costs for large trading houses.
The stock exchange's new tiering plan puts volume discounts out of the reach of all but a handful of active trading houses, sources say. The steep price increases, they add, explain last year's rash of ECN deals.
"The tiers you have to hit to get any meaningful improvement upon the base rate can only be described as astronomical," one trading exec told Traders Magazine. "Fewer than a handful of firms have a shot at hitting them."
The changes go into effect this month. Previously, traders aiming for the lowest fee to take liquidity off of Nasdaq's trading platforms had to post a daily average of 10 million shares. They must now supply a minimum of 30 million shares and remove or route at least 50 million shares.
The cheapest rate has gone up as well. From 27/100ths of a cent per share, liquidity takers must now pay 28/100ths of a cent.
Liquidity providers also have a higher threshold under the new scheme. They must add an average of 30 million shares daily to get a discount. Previously, the hurdle was 20 million shares. The rebate for providers remains the same at 25/100ths of a cent.
Nasdaq would not comment about the effect its new tiering arrangement would have on the bottom lines of large trading houses. Some industry sources, however, point out the move last year by big traders to own ECNs came in expectation of the price increases.
Citigroup became the latest big trader to announce an ECN deal with its acquisition of NexTrade's OnTrade unit. The new ECN will "reduce transaction costs to the industry," Citigroup exec Jim Forese said in a statement. He added it "provides execution flexibility for ourselves."
The Citigroup deal was preceded by the acquisition of the Attain ECN by Knight Capital Group and the launch of the BATS ECN by daytraders TradeBot Systems and Getco.
