The National Stock Exchange, in a letter to the Securities and Exchange Commission last week, petitioned the regulator to disapprove a proposal by the Financial Industry Regulatory Authority to dun ECNs for the upgrade of the Alternative Display Facility, or ADF.
FINRA has asked its ECN members to pony up $250,000 or $500,000 to help pay for the cost of rehabilitating its 11-year old ADF. The ECNs want an operational ADF—it is currently not functioning—so they can quote there. Today, they quote on the NSX.
Under the proposal, if the ECNs invest in the upgrade of the ADF, and also commit to quoting on it, FINRA will reimburse them with the market data revenues it receives.
The NSX calls the charges unreasonable and the whole scheme a burden on competition—specifically the NSX.
“The ADF proposal requires members to send 75 percent of their quotes and trades to FINRA,” David Harris, NSX chairman and chief executive officer, told the SEC in the letter. “This unprecedented requirement is a burden on competition for any self-regulatory organization that is seeking to offer ECN quote display, and is not necessary and appropriate.”
ECNs quote on NSX and Nasdaq. NSX offers a popular order delivery service that sends incoming orders to ECNs that are quoting on NSX for a fill or reject.The ECN has less than a millisecond to respond.
This year, however, the NSX won SEC approval to allow its customers to trade against only those quotes that can be filled immediately if they choose. That has upset the ECNs as it means their quotes can be bypassed.
Citigroup’s Lava Trading is the largest ECN. Credit Suisse and Bloomberg Tradebook also operate ECNs.
