NYSE Euronext Changes Trading Fees on U.S. Stock Exchanges to Boost Share

NYSE Euronext is altering the prices to trade on its U.S. equity markets, adopting a structure on the smallest exchange in which it will lose money on some trades to boost its market share and revenue.

NYSE Amex will lower the charge for firms that execute against bids and offers in its book to 13 cents per 100 shares from 21 cents. Rebates to providers of liquidity will remain 19 cents, meaning the exchange will cede 6 cents per transaction. The new rules, applying to securities listed on Nasdaq Stock Market traded on Amex, are effective Sept. 1.

Pricing is one of the main ways stock exchanges compete for orders from brokers as they seek to increase their share of trading in a U.S. stock market that has fragmented into as many as 50 different venues. Brokerages have become willing to move some orders to exchanges with cheaper trading as long as they can meet the obligation to give customers the best execution.

“There’s been an uneasy truce, a tentative equilibrium in U.S. cash equities pricing and competition for about the last year,” said Justin Schack, director of market structure analysis at broker Rosenblatt Securities Inc. in New York. “But now more markets are launching and that’s injected a bit of fresh competition in the industry.”

Nasdaq OMX Group Inc. in New York plans to restart a third equities market next month called Nasdaq OMX PSX, using the license it acquired in July 2008 when it bought the Philadelphia Stock Exchange for $652 million. Kansas City, Missouri-based Bats Global Markets is preparing to open a second equities platform in mid-October.

Inverted Structure

“It’s the early days of the launch and we wanted to get customers focused on pointing their routers to Amex,” said Colin Clark, senior vice president for strategic analysis at NYSE Euronext. Amex began trading Nasdaq-listed stocks last month. “An attractive inverted rate structure is a good way to do that,” he said. “We’re hoping to drive additional liquidity and market share.”

All U.S. stock exchanges match orders that have already been submitted to them against incoming buy and sell requests. Most pay brokers for the bids and offers displayed in the exchange’s trading book while charging firms for orders that execute against them. Exchanges that use the fee model, maker- taker pricing, usually earn the difference between what they charge so-called liquidity takers and the rebate they give liquidity providers.

Nasdaq Shares

Amex is willing to take a loss to drum up business in Nasdaq securities. The introduction of Nasdaq shares last month wasn’t a “smashing success out of the gate,” Rosenblatt’s Schack said. “Maybe between not getting a ton of market share right away and facing competition from Philly launching with inverted pricing, they decided to take this step,” he said.

Nasdaq OMX plans to start trading on its PSX market with a 13-cent fee for liquidity takers and a 20-cent rebate for providers. PSX will use new rules designed to attract larger orders than other exchanges tend to receive.

Amex chose to offer a 13-cent fee for traders taking liquidity because “we needed to offer something substantial to motivate people to send their flow,” Clark said. The exchange’s inverted pricing won’t last indefinitely. How long it remains depends on the success of the new pricing, he said.

“We’re trying to reach as many customers as we can,” Clark said. “We’ve got a good core group of liquidity providers. Now that we’re almost in full rollout of Nasdaq- listed securities, we want to encourage people to send liquidity.”

Closing Auctions

In addition, the New York Stock Exchange and NYSE Amex will raise the fee charged for orders submitted to their closing auctions to 8.5 cents for 100 shares from 7 cents. That means firms including mutual funds seeking to replicate the returns of a benchmark gauge such as the Standard & Poor’s 500 Index by trading at the official closing price of a stock in NYSE’s and Amex’s end-of-day auctions will see their costs rise.

Clark said the exchanges’ 8.5-cent fees remain lower than the 10 cents Nasdaq charges per 100 shares in its closing auction. NYSE’s closing trades usually include about three times as many shares as Nasdaq’s auction, he added.

NYSE Arca will also raise the fee for brokers that meet a volume tier for pricing when they take liquidity from the market. Instead of 29 cents per 100 shares, they’ll pay 30 cents starting Sept. 1, although they’ll continue to get a 30-cent rebate when they provide orders to the exchange.

“Exchanges have to be more competitive,” Schack said. “With new platforms being launched, a big focus is on experimenting with price.”

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net.

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