In a bold move to reduce total trading costs for market makers and order entry firms that are its heaviest users, Nasdaq Transaction Services, is cutting prices for Nasdaq trade reporting, network connectivity, testing and other systems, as of April 1.
In particular, Nasdaq is slashing access costs for the Nasdaq Workstation II and for application-programming interface (API) log ons, from $525 per log on per month for the first 150 users, to $200 per log-on per month. This applies to all sites of a firm and all sites of the firm's wholly owned subsidiaries and similar affiliates. For $525 per month, firms receive data over Workstation II and they can also trade over it.
"This is the way you connect to Nasdaq," explains Wes McGrew, senior vice president for Nasdaq Transaction Services. As of April 1, Nasdaq is also drastically reducing the Computer to Computer Interface (CTCI) Bandwidth Enhancement fee from $4,000 per 64 kilobytes per second (kbps)-increment per month to $600 per kbps. "Firms need to either have the API or CTCI for market data and to trade, or to put liquidity into SuperMontage and to take it off SuperMontage," he explains.
About 100 firms use CTCI -- as compared with 10 times that number which connect to Nasdaq -- generally for trade reporting and receiving execution messages for certain purposes.
The price cuts, which extend to locked-in trade reports submitted to the Automatic Confirmation Transaction Service (ACT), are part of a series of steps Nasdaq is taking to compete against electronic communications networks.
" It's another way to increase their market share. It goes hand in hand with rumors that Nasdaq is looking for an acquisition," comments Sang Lee, manager of securities & investments group at Celent Communications. "Obviously people are looking for cheaper transaction costs. This certainly would go towards achieving that goal," adds Lee.
"I'm sure they've heard complaints with users communicating with Nasdaq and with the Nasdsaq Workstation II connectivity," says Lee. Obviously (firms) could use their own proprietary or third-party systems, he says. It could be any order-management systems that might have connections or any direct-access technology like Lava that can access not only SuperMontage but all the ECNs and whatever liquidity centers exist," he says.
The price cuts affect all market makers and order entry firms but will mainly benefit high-volume users. "While all of our users will benefit, the heavier- volume users will tend to be market makers, so the benefits will be greater for them," says WesMcGrew.
"It will reduce the costs for our largest users and those larger users, like everyone, have alternatives. Those alternatives include using our competitors to a greater extent and also include trying to get by with fewer log ons to do their business with fewer connections to Nasdaq," adds McGrew.
Heavy users of SuperMontage may end up paying no trade-reporting fee. Nasdaq filed with the Securities and Exchange Commission to eliminate by June 1 ACT-SuperMontage trade-reporting charges of 2.9 cents for firms that execute over 10,000 trades per day on average over the course of the trading month. Currently firms pay 2.9 cents per side to report SuperMontage trades to ACT.
In addition, Nasdaq is implementing a tiered-pricing-plan for locked-in trade reports submitted to ACT in Nasdaq National Market and SmallCap Market securities. A locked-in trade occurs when a market maker reports a trade on behalf of both buyer and seller, as in the case of internalization, where the trade does not go through matching and comparison.
Currently, the ACT reporting fee for locked-in trades is 2.9 cents per side. Under the new discount, based on the daily volume for media reports, the reporting party will pay 2.9 cents per locked-in trade report for the first 10,000 shares, then 1.5 cents for 10,001 to 50,000 shares. If a firm's average daily volume exceeds 50,000 shares, the reports are free above that level.
Locked-in trade reports include: Automated Give-Up (AGUs), Qualified Service Representative (QSRs), Primex Auction System and internalized trades. Automated Give-UP and Quality Service Representative reports are agreements that allow a firm to submit trade reports on behalf of their correspondents. Nasdaq not only disseminates the trade reports to the tape, but it submits the reports to the National Securities Clearance Corp. for settlement.
"This is the main way that people do trade reports for executions that do not occur over SuperMontage and that are not matched and compared," says McGrew. "When a market maker reports an internalized trade that they didn't do over SuperMontage, or when an ECN reports a trade to Nasdaq that results from subscribers meeting on the ECN's book, those trade reports will be in general either QSRs or AGUs," he explains.
In reaction, Michael Richter, chief executive officer of Lime Brokerage, an order-entry-firm that participates in SuperMontage says, "They have crossed the level of pricing complexity. Keep it simple is my underlying recommendation to them," says Richter. "It remains in my mind unnecessarily complex. I can't quite see the reason for the complexity," Richter adds. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio