Standing high above Exchange Place, Joseph Rizzello looks out the windows of his trading floor across the Hudson River to Lower Manhattan. In May, the chief executive officer of the National Stock Exchange (NSX) brought its electronic trading platform from the Midwest to Jersey City, N.J., to take on the big boys of Wall Street. His goal? To fill the competitive void left behind by the New York Stock Exchange’s acquisition of the American Stock Exchange.
In February, the NSX introduced an aggressive but simple fee schedule intended to steal trading volume, especially in exchange-traded funds, from the NYSE Arca platform and the NASDAQ Stock Market. It instituted an inverted pricing structure across all securities. Stock exchanges earn revenue by charging fees on trading volume. But the NSX is taking a loss on every trade to bring in traders. For securities trading on Tape A (those listed on the NYSE) and Tape C (for NASDAQ issues), the “liquidity provider” – or the firm instigating the trade – gets a rebate. The NSX pays the provider 26 cents per 100 shares for bringing the trade to the exchange. The firm taking the other side of the trade, i.e., the “liquidity remover,” is charged 25 cents per 100 shares to take securities off the exchange. On every 100-share lot traded, the exchange loses a penny.
This story was originally published in ETF Report. For the full article click here.