Savings to be shared with those who post trades

The Nasdaq Stock Market Inc. has initiated a new pricing plan for stock quotes and trading fees.

“This pricing plan will improve the market by encouraging participants to provide more liquidity, is more fair for market participants” and is expected to leave overall trading costs about 8% below pre-SuperSoes levels, Nasdaq president Richard Ketchum said in a statement. SuperSoes, a revised version of the Small Order Execution System, was introduced by Nasdaq in July.

The first phase of the new plan was submitted to the Securities and Exchange Commission in late September and took effect Oct. 1. The second phase was submitted to the SEC in early October for implementation Nov. 1. The third phase was submitted Oct. 5 for implementation Dec. 3.

Comments can be filed with the SEC, which must grant final approval.

some recovery

The new pricing package will increase Nasdaq’s revenues from trading and price quotes to about 92% of what they were before the introduction of SuperSoes, says spokesman Scott Peterson, declining to reveal how much Nasdaq brings in from the fees.

Large SuperSoes orders will cost more, while small orders will cost less, Mr. Peterson says.

Before SuperSoes was introduced, Nasdaq charged 25 cents every time an order was canceled. “Those charges were an important part of our revenue flow,” Mr. Peterson says.

“Now SuperSoes is an automatic execution system that gathers orders from a number of different market participants and essentially folds them all together – and bang, you have an execution.”

As a result, after SuperSoes was implemented in August and September, Nasdaq was receiving only about half the revenue it was receiving before the system started.

In August and September, a SuperSoes order for most people cost 50 cents to enter and execute, according to Dean Furbush, executive vice president in charge of Nasdaq transaction services.

Under the new pricing system, it will cost 10 cents to enter an order, regardless of whether it is executed.

In addition, when the system is fully implemented in December, Nasdaq will charge 0.2 cents to 0.3 cents per share when orders are executed.

Nasdaq is also providing a “liquidity rebate” for market makers that are providing liquidity. The market makers will get half of the per-share execution fee. “This is an element that we think is important in bringing more liquidity into the center of Nasdaq,” says Mr. Furbush. “They put out a bid. Other people come and access that.”

Jeffrey Meyerson, vice president of trading at M.H. Meyerson & Co. Inc., a Jersey City, N.J., market maker in Nasdaq and over-the-counter securities, says he has not had a chance to fully evaluate the plan.

“In general, a lot of the changes that Nasdaq has made over the years have been positive for the industry, with the exception of the penny increments,” Mr. Meyerson says. “We’re just taking it one day at a time right now.”

Nasdaq plans to share revenues it receives from selling market data, which annually brings in about $200 million. That has been a source of friction between Nasdaq and discount brokers such as Charles Schwab & Co. Inc. that want to provide such data to their customers. Electronic trading systems, known as ECNs, also have complained that the fees are too high.

“We’re going to be sharing some of those funds back with those who post or place their trades with Nasdaq,” Mr. Furbush says. Nasdaq will deduct the cost of the regulatory charges it pays. It will then share 50% of the revenue that it makes on internalized trades, which do not use the Nasdaq system.

Nasdaq will charge a penny for updating a quote to cover the expense of keeping quotes current. Nasdaq recently set a new record of more than 8 million quote updates a day.

Nasdaq also is moving back fees to pre-SuperSoes levels for SelectNet, which was its primary trading system before SuperSoes was adopted in July. “SelectNet’s purpose has changed from the way it used to be,” Mr. Furbush says.

“It used to be a product that [Nasdaq] wanted to have very low priced for linking up among ECNs,” he says. “That battleground has changed.”