NYSE Won't Follow Nasdaq in Reducing Trading Fees
By Edgar Ortega
March 9 (Bloomberg) -- NYSE Group Inc., owner of the world's largest equity exchange, will maintain the fees it charges brokers to trade on its Arca electronic system as rival Nasdaq Stock Market Inc. cuts prices for its biggest clients.
``We aren't anticipating changing our pricing on Arca because our customers trade on Arca for reasons other than just price,'' NYSE Group Chief Executive Officer John Thain said in an interview. ``Arca has really never tried to compete with Nasdaq on price. It competes much more on service.''
Competition to handle portions of the roughly 5.5 billion shares that change hands daily in the U.S. has intensified as new markets seek to lure investors with lower costs. Transaction fees, the exchanges' biggest source of business, represented 46 percent of revenue at the NYSE and 72 percent at Nasdaq during the fourth quarter.
Bats Trading Inc., a Kansas City, Missouri-based electronic exchange, captured a 9.2 percent share of Nasdaq-listed stocks in its first year of operation in part by netting 2 cents per 100 shares traded, compared with as much as 10 cents on Arca and Nasdaq. Average daily trading on Bats has more than doubled during the past three months to 261 million shares in March helped in part by a one-month promotion in which the company spent $6 million completing trades at a loss.
The National Stock Exchange, the third busiest market behind NYSE and Nasdaq, started its Blade trading system in December and adopted a fee structure a month later that pays some brokers a rebate of 30 cents per 100 shares, while charging others the same amount to complete a transaction. The Chicago-based exchange makes money mostly from the sale of data on the roughly 90 million shares it trades daily.
Fending Off Rivals
Nasdaq has tried to fend off the competition by giving price breaks to its largest customers. This month it lowered its fees for brokers that handle more than 90 million shares a day to net 1 cent per 100 shares traded. Beginning in November, it also made it easier for customers to qualify for its best rates. Bethany Sherman, a Nasdaq spokeswoman, declined to comment on Thain's remarks.
``Nasdaq has always focused on the most price-sensitive customers, so when Bats comes along and undercuts them, it's very successful,'' said Thain during an interview March 7. The Arca electronic market has maintained a fee schedule that allows the company to collect 10 cents per 100 shares traded for the past three years, he said.
Big Backers
NYSE's Arca will face increasing pressure to lower prices as brokerages' trading commissions decline, said Mark Madoff, co- director of equities at New York-based Bernard L. Madoff Investment Securities LLC.
``It doesn't mean that Arca has to change today, but as trading becomes more and more commoditized they're going to have issues if they're not price competitive,'' Madoff said.
Bats and the National exchange last year received a total of $65 million in investments from Wall Street's largest equity traders, including Credit Suisse Group, Morgan Stanley and Merrill Lynch & Co. Bloomberg LP, the parent of Bloomberg News, is a minority investor in the National exchange through its Tradebook unit.
Arca's market share in trading Nasdaq-listed stocks slipped to 19.2 percent in January from a record 22.2 percent in July 2006, according to data on the NYSE's Web site. Over the same period, Nasdaq's slice of trading in its own listed stocks has dropped 4 percentage points to 44.8 percent, according to data on its Web site. Together, NYSE and Nasdaq handle 90 percent of all shares traded.
Speed and Price
Shares of NYSE Group fell 21 cents to 84.30, while Nasdaq shares added 3 cents to $28.56 in composite trading at 4:27 p.m. Over the past year, NYSE Group stock has gained 11 percent, while Nasdaq stock has lost 28 percent.
NYSE Group has tried to attract different types of customers to its two exchanges, Arca and the Big Board, Thain said.
Arca matches orders in less than a tenth of a second and pays a rebate to brokerages that add orders with specific price information. For investors who don't need to trade so quickly, Thain said, NYSE's trading floor offers the certainty that most orders get filled at prices that match the best quote on any U.S. market.
Fees at the NYSE are so low that many investors focus more on total transaction costs, which include how their trades impact the price of a security, he said.
``You really have to look at different segments of the market,'' Thain said. ``We compete by offering the most liquidity, the best prices, and low transactions costs.'' |
