Sunday, March 3, 2013

NASDAQ Pays for Trades

FT reported:

The NASDAQ exchange is specifically targeting price-sensitive brokers that transact on behalf of retail investors, including UBS, Citigroup, Knight Capital and Citadel, and offering them rebates larger than the amount they take in for executing the trade. People familiar with the scheme confirmed the trades were lossmaking.
Will NASDAQ's move get exchanges in a rebate war over preferred customers?

NASDAQ believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, NASDAQ does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets.
How much of the savings will UBS, Citigroup, Knight and Citadel pass on to their few remaining retail customers?

If there is a long term rebate war, how might this explode?

“I don’t think it’s healthy for the business or the market for us to create a price war in a negative margin area,” said one of these people. “It’s not a sign of health. It’s a desperate situation.”

Does Uncle Sam consider NASDAQ too big to fail?  Recall The Carlyle Group recently held talks with NASDAQ.  Uncle Sam subsidized Carlyle's "rescue" of BankUnited to the tune of $2.27 billion.  That's before fees and dividends.

The NASDAQ "loss leader" situation bears watching.