The NASDAQ Wants To Cut Costs: The SEC Says No, Why?

The NASDAQ wants to lower the costs to retail brokers. However, the SEC is interfering with the changes. In a bold move, NASDAQ attempted to lower fees by providing heavy use retail operations reduced price deals on the NASDAQ book and market depth data feeds. The NASDAQ proposed the price cuts in an effort to more effectively compete with brokers that internalize orders. In other words, the NASDAQ is trying to level the playing field.

Unfortunately, the regulatory bodies do not see things the same way. The regulators see the price cuts only through a monopolistic filter. In other words, the powers that be believe that NASDAQ is trying to push competitors out of the market by lowering costs. Complaints were immediately logged against the proposed fee cut by both the Securities Industry & Financial Markets Association (SIFMA) and the NetCoalition. Claiming abuse of monopoly power, the SEC joined the complainers. The NASDAQ was barred from lowering costs by combining its execution services with data feeds in September. Had NASDAQ been permitted to bundle its data feeds with depth of market book services, the lower costs created would have been a benefit to heavy use retail brokers. However, all is not lost, yet. Not one to quickly admit defeat, the NASDAQ retained Attorney Eugene Scalia of Gibson, Dunn, and Crutcher to challenge the ruling.

Following protocol, Attorney Scalia forwarded a “Petition for Review” to the SEC. This filing is aimed at forcing the SEC to reconsider its stance on the matter. According to NASDAQ, the regulator did not provide any evidence of its claims and failed to consider inherent competition. According to Traders Magazine the petition explained to the SEC, “(The new fee structure will allow the NASDAQ to) compete more effectively against new exchange competitors and alternative trading systems, including dark pools, which have lower regulatory costs and often attract order flow by providing market data free of charge.”

Interestingly, Bloomberg, Google and Yahoo have all joined the fight against the NASDAQ lowering fees by the proposed structure. Backed by the NetCoalition, a group pushing for freer market data, these companies joined together in the letter to the SEC. The letter pushed for even lower costs claiming that the NASDAQ already has a monopoly therefore should distribute market data at marginal cost.

One needs to consider the motivation of these groups. Obviously, Yahoo and Google do not compete with the execution services of NASDAQ. Yahoo and Google simply want free data for their various financial sites. Let’s hope they don’t kill the golden goose by preventing NASDAQ from effectively competing with other venues.

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