Nasdaq ready for price war with Nyse - report

Nasdaq ready for price war with Nyse - report

US electronic stock market Nasdaq says it is prepared for a price war if its bigger rival The New York Stock Exchange cuts tariffs when new trading rules are introduced next year, according to a Financial Times report.

Chris Concannon, head of transaction services at Nasdaq, told the FT that he was "very comfortable with our current pricing position" and the prices Nasdaq charged traders were already half those charged by Nyse.

Concannon says a price war would be "painful" for rival Nyse.

The comments come as US financial markets are preparing for the introduction of Reg NMS which will require all exchanges to post best prices electronically and for brokers to execute a trade wherever the best price is displayed. Nasdaq has moved to gain an early advantage of the situation by offering aggressive price reductions in an effort to capture more liquidity electronically ahead of the switch.

In response Nyse, which acquired automated exchange Archipelago last year, is working to introduce a hybrid system which aims to combine fast on-screen dealing systems with traditional floor-based market-making.

According to the FT report, "Nyse insiders" say they expect the floor-based system will remain attractive to many clients and that the exchange's size and and liquidity will give it a competitive advantage which should mean that the best prices will normally be available on Nyse.

While Nasdaq and Nyse talk tough on prices, a number of investment banks and brokers have made investments in smaller regional US exchanges amid rising concern that Nyse and Nasdaq could use their market power to raise trading fees.

In June, Bank of America, Bear Stearns, E*Trade Financial and Goldman Sachs made a combined $20 million equity investment in the Chicago Stock Exchange, while last year Morgan Stanley, Citigroup, UBS, Credit Suisse, Merrill Lynch and Citadel Derivatives each acquired minorty stakes in the the Philadelphia Stock Exchange (PHLX).

Most recently a group of Wall Street banks, including Citigroup, Bear Stearns and Credit Suisse, was reported to be teaming with e-trading firms Bloomberg and Knight Capital to buy a 50% stake in the all-electronic National Stock Exchange (NSX).

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