US bourses seek revenue diversification
Nasdaq OMX plans to launch new algorithmic services for its broker-dealer members, in evidence that US bourses are looking to expand their businesses to maximise revenue.
Speaking at Nasdaq OMX’s 2012 investor day, Eric Noll, executive vice president, transaction services, US and UK, said the new tools – known as benchmark orders – would be rolled out this quarter and could increase the US bourse’s market share by up to 7%.
“We think VWAP, TWAP, and percent of volume strategies have become relatively commoditised in the algo space,” said Noll. “What we intend to do is offer those as order types on our exchange.”
Noll stressed that the new order types were not targeted directly at the buy-side, rather they would provide a cheaper algorithmic offering to broker-dealers that are unable to compete as effectively as large sell-side providers.
“This is not intended to compete with the high-end, high-touch, highly sophisticated algo providers, but is instead addressed to the largest part of the market, which is the VWAP and TWAP market, and say we can do this for you better, faster, cheaper than you can do it for yourself,” added Noll.
Nasdaq’s new order types follow an admission by rival exchange NYSE Euronext's CEO Duncan Niederauer that his firm would have to look beyond trading for further growth.
“This year will be critical for our post-trade services and products," Niederauer is reported to have said. The group has already laid out plans for revamping its clearing offering in Europe.
NYSE Euronext is also seeking approval from the Securities and Exchange Commission (SEC) for a dark pool specifically targeted at retail brokers a new service that it believes will bring more equity trading on exchange. But last week the SEC again delayed approval of NYSE’s retail programme – the third delay by the regulator since the exchange’s initial filing in October 2011.
“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule changes so that it has sufficient time to consider the program and the issues that commenters have raised concerning the program,” read the SEC’s latest filing.
NYSE Euronext wants to create a non-displayed trading environment that would encourage retail brokers to trade on the bourse directly. The new programme would pay rebates to retail brokers that send their orders to NYSE Euronext and allow them to trade against designated market making firms that will receive trading fee discounts for providing liquidity.
Among the SEC’s concerns is a proposal in NYSE’s plan for quoting prices in sub-penny increments, which could lead to widespread changes to tick sizes across US bourses.
NYSE Euronext declined to comment on the SEC delay.
Speaking to theTRADEnews.com prior to the initial SEC delay, Joe Mecane, co-head of US listings and cash execution at NYSE Euronext, said a direct consequence of the plan would be the migration of OTC trading on exchange.
“It’s a way of bringing what already happens in the retail space onto an exchange environment and allowing us to use our ability of bringing multiple counterparties together to create a more efficient experience for retail traders,” he said.