Nasdaq cuts fees
Thu Mar 1, 2007 4:18pm ET
By Jonathan Keehner
NEW YORK, March 1 (Reuters) - Nasdaq Stock Market Inc. (NDAQ.O: Quote, Profile , Research), under pressure from rival NYSE Group Inc. (NYX.N: Quote, Profile , Research) and others, has cut its transaction fees in hopes it will lead to market share gains, prompting some concerns about a price war.
The cuts come as Nasdaq, the largest U.S. electronic stock market, struggles against the Big Board and alternative trading venues like BATS Trading, which recently handled more than 10 percent of daily volume in Nasdaq-listed securities.
"This is purely an offensive maneuver," Nasdaq Senior Vice President Brian Hyndman said. "We are putting pressure on the New York Stock Exchange and some of the smaller players."
The new pricing, effective immediately, reduces fees to 26 cents per 100 shares, compared to 27 cents previously, which combined with an unchanged 25-cent rebate, reduces total pricing for Nasdaq's best customers to 1 cent per 100 shares.
But analysts noted that Nasdaq, which in January saw its share in Nasdaq-listed securities slip by 1.6 percentage points from the prior month, could be hurt by the move.
"We are concerned that if Nasdaq is able to win market share by lowering prices that the competition will follow to recapture lost share," JPMorgan analyst Kenneth Worthingon said in a research note. "Accordingly, we'd be in a price war."
The stock market operator said the move had been factored into prior guidance and that it still sees net income of $180 million to $190 million for 2007.
Nasdaq shares fell as much as 7.3 percent on Thursday after the exchange informed traders about the price cuts the previous night via an e-mailed statement. The stock later trimmed losses and ended down 63 cents, or 2.1 percent, at $29.30.
Higher trading volume could offset potential losses for Nasdaq through transaction and market data revenues, Sandler O'Neill analyst Richard Repetto wrote in a client note.
Repetto also noted that on March 5, a deadline for new U.S. securities regulations, the NYSE will raise the fees it charges customers for routing orders to other markets.
The regulations, called Reg NMS, require automated trades to be executed at the best available price -- which may increase the number of orders routed between trading venues.
"We view that the world is changing with Reg NMS coming out on Monday," Nasdaq's Hyndman said.
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