ECN liquidity fee vs. Spread
If NITE makes 1/16th on the spread, that is 6.25 cents per share. Therefore, the equivalent "gross profit" on the ECN model is just that, a liquidity fee of 6.25 cents per share.
The highest liquidity fee I've seen so far is about 1.5 cents per share. So, given a spread of 1/16th, NITE has something of a 4 to 1 gross profit advantage over the ECN model. As I stated in my prior post, NITE can do a lot with this gross profit advantage, including the making of payments to induce order flow.
Moreover, as I stated in the prior post, ECN competition will reduce liquidity fees. That will only give NITE an even larger pricing power advantage. One could argue that, as decimalization nears and spreads themselves narrow (to as little as one penny), NITE would want to see intense ECN competition, so that these ECNs reduce their liquidity fees as low as possible. Thus, even at a 1 penny spread, NITE would have a 4 to 1 pricing power advantage over the current ISLD liquidity fee of 1/4 penny per share.
Gary Korn |
