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The experiment, which began on Feb. 2 and will
run for at least four months, includes 14 stocks that had their
associated fees lowered on Nasdaq's exchange to 5 cents per 100
shares from 30 cents per 100 shares, and their rebates cut to 4
cents per 100 shares from 29 cents per 100 shares.
Stock exchanges pay rebates as incentives to market makers that
post resting orders on both sides of the best bid and offer in
order to help get trades done for other market participants.
When a broker sends an order to the exchange to be immediately
executed and it hits a resting order, the broker is charged a
fee that subsidizes the rebate.
But many retail brokers, fund companies and institutional
investors have complained that exchange fees are too high,
forcing them to send their orders to private, broker-run trading
venues that charge less than public exchanges.
Nasdaq said in a report detailing the first month of its pricing
experiment that it lost market share in all but two of the 14
stocks as market makers provided 16.8 percent fewer resting
orders in those names overall on Nasdaq's exchange. The shares
also trade on other exchanges, such as BATS Global Markets and
Intercontinental Exchange's <ICE.N> NYSE unit, which are not
part of the Nasdaq initiative.
When the rebate-seeking firms pulled back from Nasdaq,
Investment Technology Group <ITG.N>, a brokerage that caters to
institutional investors, said it began receiving better order
executions at Nasdaq and it actually increased the amount of
orders for the test stocks it sent to the exchange.
ITG said its order routing algorithms look for the markets that
fill their orders the fastest and most completely, and do not
take fees and rebates into account.
"The brokerage community, if interested in improving performance
on behalf of their clients, should pay heed," ITG said in a note
to clients on Friday.
Nasdaq plans to release data each month during the experiment to
show how market participants are adapting to the change in
pricing.
(Reporting by John McCrank; Editing by Richard Chang)
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