May 4, 2006
Trading Fees on the Exchanges
The WSJ today, in an article by Aaron Lucchetti "Nasdaq, NYSE Wrestle it Out Over Trading Fees," has begun to report on the juxtaposition of our exchanges going public with the traditional heavy SEC micro-management of the trading markets. It is an excellent article on matters that most traders could care less about. But, as Lucchetti has reported, a great deal is at stake.
The exchanges are wrangling over the rules for reporting internalized trades from brokerage houses and collecting the appropriate fees. The fees are an important element of Nasdaq's revenue. Why the wrangle? What should be a market based competition is a lobbying problem. The NYSE wants the SEC to prohibit the Nasdaq from collecting the fees. The NYSE cannot not collect such fees. The Nasdaq has petitioned to be and soon will be an exchange itself. Will it now also be prohibited from collecting the fees? Will a joint venture between the Nasdaq and the old NASD be approved by the SEC to allow the Nasdaq to continue to do what it did before it was an exchange? Good grief.
The SEC should have nothing to do with this. The exchanges should compete for the fees for reporting the internalized trades. But the SEC, long comfortable regulating the smallest details of the exchanges' last trade reporting systems when all the exchanges were not-for-profit member organizations, will, no doubt, try to structure the reporting system containing the new for-profit exchanges. The SEC, as we have seen with Regulation NMS, is heading in the wrong direction of more regulation, not less. The SEC is acting more and more like a state public utilities commission but without the economic justification. National markets are not natural monopolies.
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