Nasdaq seeks help from SEC on regulatory costs
Monday, February 3, 2:38 pm ET
NEW YORK, Feb 3 (Reuters) - The Nasdaq Stock Market Inc., saying its long-term viability could be at stake, is asking market regulators to force other venues that trade Nasdaq stocks to foot a larger portion of the regulatory costs associated with such trading.
"NASD and Nasdaq continue to shoulder most of the regulatory burden and costs associated with trading in Nasdaq securities even though a significant portion of that trading activity no longer takes place on Nasdaq," said Nasdaq President Richard Ketchum in a letter sent to the U.S. Securities and Exchange Commission, dated Jan. 24.
In 2002, Nasdaq spent roughly $80 million for the regulation of trading in Nasdaq securities, and it resorted to cutting staff in nonregulatory areas to maintain profitability, Ketchum stated.
NASD, formerly the National Association of Securities Dealers, is Nasdaq's parent.
The cost of regulation has "significantly hindered Nasdaq's ability to compete with the growing number of alternative trading venues," Ketchum said, adding that: "We are growing increasingly concerned that the current allocation of regulatory responsibilities and costs poses a material threat to Nasdaq's long-term commercial viability."
The number of venues where Nasdaq trading takes place grew in 2002, although the regulatory structure and costs for overseeing those transactions stayed largely the same, the letter said.
"At the start of 2002, virtually all transactions in Nasdaq securities occurred on Nasdaq," the letter said. "By year-end 2002, one in six such transactions occurred away from Nasdaq."
That change occurred as Nasdaq competitors looked to alternative venues to post their quotes after the No. 2 U.S. stock market launched its upgraded trading system, SuperMontage, late last year.
Rather than using Nasdaq's system, last year Island ECN begin using the Cincinnati Stock Exchange to post its Nasdaq quotes, and Instinet Group Inc. now posts its quotes on the NASD's alternative display facility, which was launched last year in conjunction with SuperMontage.
Island ECN is a unit of Instinet, and Instinet is majority owned by global news and information provider Reuters Group Plc.
In addition, Archipelago Holdings LLC is getting ready to migrate its trading of Nasdaq stocks away from SuperMontage and onto its own exchange, Archipelago Exchange.
Nasdaq is due to report its 2002 results Feb. 25. In the third quarter, Nasdaq reported a rise in net income compared with a year earlier as it reduced expenses and said it was in the process of cutting its staff by 7 percent to 10 percent.
"This has been a difficult revenue environment, with a lot of pressure on our business units," Nasdaq Chief Financial Officer David Warren told Reuters at the time.
Nasdaq proposed in the letter that regulatory responsibilities and costs be reallocated -- meaning many non-Nasdaq venues that trade Nasdaq stocks would be required to pay a larger portion of the costs than they currently do.
Nasdaq said it expects its rivals to oppose its proposal.
The SEC did not immediately return a phone call seeking comment. Archipelago could not immediately be reached for comment. A spokesman for Instinet declined comment. |
