NEW YORK, June 30 (Reuters) - Nasdaq OMX Group said on Tuesday that U.S. equities exchange rules should be changed so that the price of trading a stock is based on the how actively it trades, echoing a similar proposal by rival exchange operator BATS Global Markets.
In a letter to Nasdaq’s customers, Tom Wittman, global head of equities, also voiced the exchange’s support for a plan by the U.S. regulators to test widening the increments, or “ticks,” at which smaller companies’ stocks are priced to see if doing so helps improve market liquidity.
Widening the ticks would give brokerages, which profit from the spreads between the bid and offer prices of stocks, incentive to post more orders, making it easier for others to trade, supporters of the plan said.
Unlike the stocks of the biggest U.S. companies, but investors often find that when they want to buy or sell shares of a small company, there is no one around to take the other side of the trade. Regulators and market participants have been seeking ways to improve the trading in those companies, and Wittman’s letter adds to the discussion.
Nasdaq said that beyond tick sizes, deciding where a stock can trade, as well as the amount of exchange fees and rebates assigned to each stock and other aspects of market structure, should be based on how liquid the stock is.
“We think a tiered structure in the U.S. makes far more sense than a one-size-fits-all approach,” Wittman said.
BATS called in January for a sliding scale for exchange fees, with fees for the most actively traded stocks lowered to a maximum of 5 cents per 100 shares, from the current 30 cent per 100. The fees for less actively traded stocks would start at above 5 cents per 100 shares, and rise to as much as 50 cents. The rebates for adding shares to an exchange would rise in tandem, giving incentives for brokers to create two-sided markets in those thinly-traded names.
Nasdaq tried its own experiment in lowering exchange fees and rebates from February through June 1 for 14 stocks. It found that its market share dropped in those stocks as some brokers sought higher rebate revenues on other exchanges.
Reporting by John McCrank; Editing by Chizu Nomiyama