"This new pricing package supports competition among exchanges and markets," said Rick Ketchum, President of The Nasdaq Stock Market, Inc. "We believe that the level of revenue that Nasdaq will share with its members is equal to or better than that of any other exchange.
"At the same time, we're dealing with the potential danger of competition degenerating into the lowest bidder regulating the marketplace. We're solving that by creating an explicit charge for regulation, which clearly establishes that regulation is an important and necessary cost of running the market. We are proud of the quality of Nasdaq's overall regulatory program. Where the cost was previously tied to measures that did not closely correlate to the regulatory services being performed, the new assessment approach will be more closely related to those activities," Ketchum stated.
Today, if a National Association of Securities Dealer (NASD) member engages in quoting activity in Nasdaq, but prints its trades elsewhere, it is able to avoid the regulation fee; however, there are still regulatory costs involved in overseeing its quoting and other activity within Nasdaq. This type of activity comes at the expense of other Nasdaq participants and investors.
"This new pricing structure is the right thing to do for the marketplace," said Dean Furbush, Executive Vice President, Nasdaq Transaction Services. "Nasdaq's regulatory services are critical to investor protection and provide assurance that the Nasdaq market is run fairly."
Currently, Nasdaq shares 80 percent of net Level 1 tape revenue after deducting regulatory costs. Beginning on June 3, Nasdaq will increase revenue sharing with Nasdaq market participants by eliminating the deduction of regulatory costs from Level 1 revenue and increasing the sharing percentage from 80 percent to 90 percent of gross revenue. Nasdaq estimates that these changes will increase tape revenue sharing to more than three times its current level. At the same time, Nasdaq will directly assess a regulatory fee to market participants based upon the following formula:
- The total number of Nasdaq securities in which the firm posts a quote (20%)
- The number of quote updates in Nasdaq securities (40%)
- Automated Confirmation Transaction (ACT) Service records, with an adjustment to minimize the charge for firms that use ACT in unique ways (40%)
Nasdaq regulates its market by contracting with NASD regulation to oversee:
- Short Sales
- Wash Sales
- Fraud Detection
- Insider Trading
- Best Execution
- Trade Reporting
- Marking-the-Close Through Prints
- Purposeful Late-Trade Reporting
- Riskless-Principal Trade Reporting
- Regulation M Compliance
- Firm-Quote Compliance
- Limit-Order Protection ("Manning")
- Real-Time Market Surveillance
- Monitoring Trade-or-Move
- Oversight of Locked and Crossed Markets Rules
- Compliance with Trade Reporting Requirements
