Photographer: Eric Thayer/Bloomberg

Nasdaq CEO Calls Cboe End-of-Day Trading Plan ‘Irresponsible’

Updated on
  • Friedman repeats call for SEC to reconsider its go-ahead
  • Analyst estimates $25 million threat to Nasdaq revenue

Nasdaq Inc.’s chief executive officer blasted a rival’s alternative way to carry out certain end-of-day trades, calling it “irresponsible” and repeating an appeal for the Securities and Exchange Commission to reconsider its approval.

“It’s really bad for investors and really bad for issuers,” Adena Friedman said Wednesday in an interview after the company released fourth-quarter results. “We believe the commission should do a full, thorough review of this in light of the trillions of dollars in assets that are tied to this value.”

Cboe Global Markets Inc. received regulatory permission this month to introduce a different way to complete some end-of-day trades. Both Nasdaq and NYSE Group Inc. are appealing the plan, called Cboe Market Close, claiming it will unfairly fracture trading at a crucial part of the day. 

“Exchanges know better than anyone the benefits of competition,” Bryan Harkins, head of U.S. markets and global foreign exchange at Cboe, said last year in an interview. “That principle is something a market leader should stand by. To block competition is kind of disingenuous.”

While Friedman said the revenue impact would be “immaterial” to New York-based Nasdaq, the actual hit could be as much as $25 million, according to Diego Perfumo, an analyst at Equity Research Desk. If successful, Cboe’s plan could cut about 2.4 percent off Nasdaq’s pretax earnings of about $1 billion, Perfumo said in a report.

Intercontinental Exchange Inc., owner of NYSE, could lose $41 million in revenue, or 1.7 percent of its $2.4 billion in pretax earnings, according to Perfumo.

“Competition will have a material impact on NYSE and Nasdaq,” Perfumo wrote.

Closing Auctions

While stocks can trade on any of 12 U.S. exchanges during the day, they generally turn back to their home listing exchanges near the close in New York at 4 p.m., when Nasdaq and NYSE carry out crucial auctions to determine final prices for securities.

Cboe’s plan would introduce a cheaper alternative for completing market-on-close orders, which execute as soon as a closing price is published at the end of the day. Orders that Cboe can’t match would be sent to their primary exchange.

After Friedman spoke in the interview, Nasdaq filed a petition formally asking the SEC to reconsider its approval of Cboe’s plan. So did NYSE.

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