New NASDAQ Fees Targets HFTs

Whether in effort to placate regulators who have put high-frequency traders in their cross-hairs, or simply in effort to increase revenue via new fees, or maybe even in effort to keep competitive, NASDAQ OMX announced that effective June 1, traders on its three exchanges will be charged a fee for posting an excessive number of orders away from the inside market quoted.

Market participants will be permitted to post up to 100 orders for every traded executed at no charge; beyond the 100 orders, participants will pay 1/10 of one cent (or more) per order.

Nasdaq announced its new policy on its website last night, [coincidentally] hours after a similar policy was announced by competitor Direct Edge. Both exchanges have come under pressure by their members and regulators to curb the message traffic on their trading platforms. Nasdaq is only targeting orders posted outside the national best bid or offer. Direct Edge is cutting rebates. Nasdaq is levying a fee.

Importantly, both exchange operators are exempting registered market makers from their new rules. Nasdaq spokesman Todd Golub says that market makers rarely post quotes outside the NBBO anyway. In fact, Nasdaq has a policy limiting the widths of dealer quotes. “The electronic market makers are not the ones putting in excessive messages away from the inside,” the exec said.

According to one Street-side market maker (who is not authorized to speak for his firm), “It will be interesting to see whether the new fee structure curtails the type of noise HFTs pollute the market with..”

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