The National Stock Exchange, on the verge of losing one of its biggest customers, is benefiting from an aggressive pricing change.
Volume on the NSX has surged to an average 157 million shares per day this month, up from 95 million in January. The increase comes on the heels of a pricing change in early February that put the NSX on par with its toughest competitors.
“We have a long way to go,” says Joseph Rizzello, NSX’s chief executive officer. “But we are pleased with our progress.”
At an average of 157 million shares matched every day on its Blade book, the NSX accounts for nearly 2 percent of total market volume. That’s up from 1 percent in January.
The numbers make the NSX the nation’s sixth largest market center, putting it within striking distance of the fifth largest, Direct Edge. The ECN matches about 250 million shares per day on its two books, giving it about 3 percent of the market.
Driving NSX’s volume boost is its February 1 move to cut its liquidity take fee to 25 cents per hundred shares from 30 cents. That put the charge in line with bigger rivals Nasdaq, BATS Trading and NYSE Arca. (The NSX also cut its rebate to 26 cents per hundred shares from 30 cents.)
Behind the NSX’s pricing plan is a need to broaden its customer base as the likelihood increases that its largest customers, the ECNS, will soon leave the exchange.
One of the NSX’s biggest customers, the BATS Trading ECN, will stop quoting on the NSX if it wins Securities and Exchange Commission approval to become a stock exchange. Approval is expected soon.
When that happens, BATS will cease to operate as a broker-dealer. It will have no need for the NSX. Any quotes posted on BATS’ book will be made public by virtue of its membership in the Consolidated Tape Association (CTA).
BATS isn’t the only ECN quoting on the NSX that is filing for exchange status. Direct Edge has also announced plans to do so.
So with the majority of the NSX’s volume coming from BATS and other ECNs, the exchange had to take steps to broaden its customer base, according to Rizzello.
“For other broker-dealers that are posting in ECNs and other exchanges, we want them to post with us,” Rizzello said. “And for those broker-dealers removing [liquidity] from ECNs and other exchanges, we want them to remove from us.”
Is that happening? “Without question,” Rizzello says.
Time is short. BATS, the fourth largest market center, is close to winning exchange status. The comment period for its application ends next week and, so far, has drawn no opposition.
The big ECN is not wasting time. It says it is making the necessary connections to the CTA, Unlisted Trading Program, National Securities Clearing Corporation and other industry bodies.
“We still have more work to do before we receive approval and eventually begin operations as an exchange,” CEO Joe Ratterman states in a recent newsletter, “but the BATS team is in overdrive to move through the next steps as quickly and smoothly as possible.”
