Brokers Group Sees Conflict in Vote for Nasdaq System

The lobbying group for brokers and money managers criticized the process for selecting who will upgrade a key piece of infrastructure in the U.S. stock market.

Nasdaq OMX Group Inc. got to vote for itself as a candidate to run the Nasdaq Stock Market’s securities information processor, which distributes prices for thousands of American equities, “despite its obvious conflict of interest,” according to a letter from the Securities Industry and Financial Markets Association. Nasdaq and Tradeworx Inc.’s Thesys Technologies LLC are the finalists to run the SIP, people familiar with the matter said earlier this month.

The SIP plays a critical role in the U.S. equity market, a point underscored in August 2013 when an error in Nasdaq’s system halted stocks including Apple Inc., Google Inc. and Microsoft Corp. Last week, nine out of 15 votes were cast for Nasdaq to win the contract, and six went to Thesys Technologies LLC, people familiar with the matter said. Ten votes are required to pick a winner.

Brokers, investors and members of the public should get a voice on the committee overseeing the Nasdaq SIP, Sifma said in its letter to Thomas Knorring, a CBOE Holdings Inc. executive who’s the chairman of the group. Exchanges are currently the only members.

“The existing governance structure for the SIPs is ineffective and must be reformed,” Sifma said in the letter dated yesterday. This has led to a “highly flawed selection process,” according to the organization, a trade group representing securities firms, banks and asset managers.

‘Self Evident’

The six votes in favor of Thesys came from Bats Global Markets Inc., which has four votes because it operates that many stock exchanges, as well as CHX Holdings Inc.’s Chicago Stock Exchange and Deutsche Boerse AG’s International Securities Exchange, people familiar with the matter said last week.

Nasdaq cast three votes for itself, according to the people. It also got three votes from Intercontinental Exchange Inc.’s NYSE Group Inc. and one apiece from CBOE, the Financial Industry Regulatory Authority and the National Stock Exchange, the people said.

ISE, CBOE and the National Stock Exchange voted even though their stock markets no longer operate.

“It seems self-evident that participation in this vital selection process should not include organizations that do not engage in an equities business or are not even in operation,” Sifma said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE