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Nasdaq Releases Preliminary Results of Fee Cut Pilot

On February 2, Nasdaq lowered exchange fees and rebates in 14 stocks in an experiment to “generate much-needed data about the impact of access fees on areas that matter most to investors such as the level of off-exchange trading, price discovery, trading costs, displayed liquidity, and execution quality.” The symbols were “intentionally chosen to represent securities with varying levels of size, trading activity, and stock price.”

Fee/ Rebate

Previous Rate per Share

New Rate per Share

Fee to Remove Liquidity

$0.0030

$0.0005

Rebate to Add Displayed Liquidity

$0.0015 to $0.00305

$0.0004

Rebate to Add Non-Displayed Midpoint

$0.0010 to $0.0025

$0.0002

Rebate to Add Other Non-Displayed Liquidity

$0.0000 to $0.0018

$0.0000

Securities Included: American Airlines, Bank of America Corp., Micron Technology Inc., General Electric, FireEye Inc., Kinder Morgan Inc., GoPro, Inc., Rite Aid Corporation, Groupon Inc., Transocean Ltd., Sirius XM Radio, Sprint Corp., Zynga Inc., Twitter Inc.

 

According to Nasdaq, the preliminary results show that the aggregate market share in the 14 pilot symbols fell 2.9 percentage points against a control group that fell 0.9 percentage points in market share during the same period. However, the change ranged almost 10 percentage points across test symbols, with the market share of Zynga, FireEye, and Groupon falling the most (nearly 6 percentage points), and the market share of Sirius XM Radio and Bank of America actually seeing increases of almost 1 percentage point.

The test symbols also saw reduced time at the inside, or the amount of time that the best bid or offer on Nasdaq in the symbol matched the National Best Bid and Offer. During the month of February, the pilot stocks were at the inside 88.1 percent of the time, compared to 93 percent in January. The control stocks saw a 0.3 percent decline over the same period. The change in individual stocks ranged from a decline of 21.4 percentage points to an increase of 0.7 percentage points. While Nasdaq also observed a decline from January to February in the size displayed at the NBBO for the pilot securities, it was within the range of variation typically observed, and thus is not statistically significant.

The study also reviewed the liquidity provided in February by January’s top five liquidity providers in the securities to assess any behavioral change potentially induced by the pilot. January’s top liquidity providers accounted for 45.2 percent of the liquidity in January, but just 28.4 percent in February, against a control drop over the same period of 1 percentage point. However, again, there was significant variation across the liquidity providers, from an increase of 10.4 percentage points, to a decrease of 14.1 percentage points.

Nasdaq plans to continue the study and says that it will release subsequent monthly reports.