Tag Archives: Nasdaq

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Strike Price, Tech Talk

NASDAQ To Buy ISE Options Mart

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(Bloomberg)-In what merger-arbitrage experts might call a ‘take-under’, Nasdaq Inc. is paying less than half the price for what ISE traded for in its last price setting after it agreed to buy Deutsche Boerse AG’s International Securities Exchange for $1.1 billion, catapulting it to the top of the U.S. options market.The transaction could also help Deutsche Boerse fund another acquisition. The Frankfurt-based company is in merger talks with London Stock Exchange Group Plc. Deutsche Boerse has been trying to sell ISE, which it bought for $2.8 billion in 2007, since at least 2014.

ISE runs three options markets, and so does Nasdaq. Together, those six exchanges handled 38 percent of U.S. volume in February, which exceeds the current leader CBOE Holdings Inc.’s 27 percent, according to data compiled by Options Clearing Corp. However, CBOE arguably retains the jewels of options trading: exclusive rights to contracts on the Standard & Poor’s 500 Index and the VIX, a CBOE product that tracks investor fear.

“We are going to have the size and scale that competitors don’t have,” Nasdaq Chief Executive Officer Bob Greifeld said in a telephone interview Wednesday. “We’ve paid attention to ISE for a long

greifeld-nasdaq
Bob Greifeld, NASDAQ

period of time.”Nasdaq sees the deal closing in the second half of the year and plans to fund the transaction with debt and cash, according to a statement Wednesday. This is the New York-based company’s fourth acquisition in recent months, following deals for an investor-relations business in Canada, the Chi-X Canada stock market and SecondMarket, a platform for trading shares of private companies.

Deutsche Boerse is keeping two parts of ISE: its ownership interests in Bats Global Markets Inc. and Digital Asset Holdings LLC, according to an e-mailed statement. Bats runs exchanges for stocks, options and currencies. Digital Asset Holdings is trying to use blockchain, the software underpinnings of bitcoin, to dramatically speed up the processing of financial transactions.

A stake in a key options-market utility will shift over to Nasdaq through the acquisition. Both Nasdaq and ISE own 20 percent of Options Clearing Corp., the clearinghouse for all trades of stock options on U.S. exchanges.

“We think that’s an incredible organization and asset certainly as time goes on,” Greifeld said. “We’re very pleased with that part of this transaction.”

Shareholders of OCC recently began receiving dividend payments, compensation for a regulatory mandate requiring its owners to contribute more capital to support the organization. Bats Global Markets, which handles just over 10 percent of U.S. options trading, has complained it’s unfair it doesn’t get those dividends because it’s not an OCC owner.

ETF News, Tech Talk

BATS is Best For ETFs..Thanks to BlackRock

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BATS Global Markets now is the leading U.S. marketplace for exchange traded funds (ETFs), executing 26.1 percent of all ETF trading in May.

MarketsMuse ETF and Tech Talk depts merge to provide following update, courtesy of James Dornbrook Kansas City Business Journal

On Thursday, the Lenexa-based stock exchange welcomed the 22nd ETF to be listed on its trading platform, the iShares Convertible Bond ETF (BATS: ICVT), an indexed bond fund that operates as a subset of the Barclays U.S. Convertibles Cash Pay Bonds Index. The index measures the performance of the U.S. dollar-denominated convertible bond market, which consists of bonds that a holder can convert into a specified number of shares of common stock of the issuing company. The bonds typically are used by companies with low credit ratings but huge growth potential.

More than half of the ETFs listed on BATS are from BlackRock Inc.’s (NYSE: BLK) iShares Exchange Traded Funds business. So the relationship with iShares has been key to BATS growth in listings for ETFs.

BATS excels at listing ETFs because offering companies are more interested in getting access to the liquidity BATS excels at offering than they are in buying marketing services, where the New York Stock Exchange and Nasdaq have a commanding advantage.

In addition to being the No. 1 ETF trading platform in the United States, BATS is also the No. 2 trader in overall U.S. equities, with a 21.2 percent market share in May.

ETF News

Could Russia ETFs Be Making A Comeback?

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After a rough year, Russia ETFs have been trying to make a comeback and it seems they may have finally done it. MarketsMuse blog update profiles the changes Russia has made that has helped boost Russia ETFs. This blog update is courtesy of Nasdaq’s article, “Russia ETFs Making a Strong Comeback – ETF News And Commentary“, with an excerpt below. 

2014 has been a catastrophic one for Russian equities thanks to the ban imposed on the nation by the West following its Crimea (erstwhile Ukrainian territory) annexation in the first half. The massive oil price crash in the second half also spurred many investors to abandon the country’s equities in apprehension of significant economic losses. As a result, Russian stocks almost halved in price last year .

However, things have changed in 2015. Like many other countries across the globe, Russia also entered into a cycle of rate cut in 2015 having slashed the key rate for the third time so far this year to ward off an impending recession. An upward movement in the local currency and cooling inflation has made this possible, per Bloomberg . 

In late April, Moscow reduced the key one-week interest rate to 12.5% from 14% and hinted at further easing if required. Notably, Russia generates about 50% of its revenues from oil and natural gas resources. So, this oil-dependent economy was crushed by the crude carnage last year. The Russian currency, the ruble, lost about 50% against the greenback in the second half of 2014 and stoked inflation.

To keep reading about Russia ETFs comeback, click here.

 

ETF News, Tech Talk

An ETF-only Exchange? BATS at Bat

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They say you should always shoot for the moon and that is exactly what BATs exchange is doing. MarketMuse update profiles BATS exchange looks to hit it out of Nasdaq’s and the New York Stock Exchange’s parks. The ETF-only exchange out of Kansas City, BATS, is planning on becoming the number one ETF trading venue by 2020 which means passing both the Nasdaq and the NYSE. BATS. This MarketMuse update is courtesy of Tom Lydon’s article “BATS Looks to be Dominant ETF Exchange” on ETFTrends.com. An excerpt from the article is below.

ETFTrends-logo   Most exchange traded products in the U.S. trade on the New York Stock Exchange or the or the Nasdaq Global Market. That is not stopping Kansas City-based BATS Global Markets from the ambitious goal of being the largest U.S. ETF listing venue in three to five years.

“There was a total of 1,411 U.S.-domiciled ETFs at the end of 2014, according to the Investment Company Institute, with more than 1,000 listed by Intercontinental Exchange’s NYSE unit and the balance by Nasdaq OMX Group,” report John McCrank and Jessica Toonkel for Reuters.

To read the entire article from ETFTrends, click here

Tech Talk

Nasdaq Agrees To Power New Bitcoin Marketplace

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MarketMuse blog update profiles Nasdaq recent agreement to power a new marketplace from bitcoin trading. Bitcoins are the largest decentralized digital currency in the market and has been taking the investment world by storm since its introduction in 2009 by its founder,  Satoshi Nakamoto. MarketMuse blog update is courtesy of Nasdaq’s article, “Nasdaq to Provide Trading Technology for Bitcoin Marketplace — Update” with excerpts from the article below. 

Nasdaq OMX Group Inc. has agreed to provide New York-based startup Noble Markets with core technology to power a new marketplace aimed at allowing companies and institutional investors such as hedge funds to trade bitcoin and related digital-currency assets.

According to a joint statement provided to The Wall Street Journal, Noble’s platform will use Nasdaq’s X-stream trading system, a high-tech system for matching market participants’ orders that is used by more than 30 exchanges and marketplaces worldwide. Nasdaq will also provide marketing support.

The agreement follows other Wall Street initiatives that could pave the way for financial institutions to own and trade digital currencies, which fans say have the potential to make the global financial system more efficient but which have also been marred by price fluctuations, investment scams and cybersecurity concerns.

 

Recent developments include: the New York Stock Exchange’s investment in bitcoin exchange Coinbase; regulatory approval of public trading in the Digital Currency Group’sBitcoin Investment Fund; former J.P. Morgan Chase & Co. executive Blyth Masters’ appointment to a lead new digital-asset settlement service; and news earlier Monday that former NYSE Chief Executive Duncan Niederauer will work as an adviser to bitcoin derivatives platform TeraExchange.

To read the entire article from Nasdaq, click here. 

ETF News

Virtus Investment Partners Take on The ETF Market

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MarketMuse update is courtesy of MarketWatch.

Virtus Investment Partners (NASDAQ: VRTS), multi-manager asset management business,  announced that they have reached an agreement with ETF Issuer Solutions (ETFis) , a comprehensive platform for listing, operating, and distributing exchange traded funds. Virtus Investment Partners will acquire the majority interest from the deal.  The transaction will provide Virtus with manufacturing capabilities for both active and passive ETFs, adding to its broad product line-up.

ETFis, founded in 2012, recently introduced the industry’s first actively managed ETF investing exclusively in master limited partnerships, the InfraCap MLP ETF AMZA, +0.14% 1. It currently manages two other ETFs and has seven additional ETFs in registration with the Securities and Exchange Commission. All of the company’s ETFs are managed by external subadvisers.

“There is growing interest among financial advisors and investors to use exchange-traded funds in their retail and institutional portfolios because of the tax efficiency and liquidity benefits that ETFs offer,” said George R. Aylward, president and chief executive officer of Virtus. “The ETFis business model is similar to the Virtus approach of offering investors access to strategies of boutique managers. This partnership with ETFis will expand our product capabilities and allow us to offer compelling investment strategies in an actively managed ETF format.”

ETFis will become a Virtus affiliate and continue to operate as a multi-manager ETF platform, providing investors access to differentiated investment capabilities from select subadvisers. The company is led by its co-founders, Matthew B. Brown, who manages operations and technology capabilities, and William J. Smalley, head of product strategy and management.

“We developed ETF Issuer Solutions to provide a technology-driven, ETF-specific platform that offers significant cost and operational efficiencies. The partnership with Virtus gives us the resources and support to execute on our long-term vision of building a leading multi-manager ETF platform,” said Smalley. “We are excited to have the opportunity to combine our offerings with Virtus’ extensive distribution capabilities to create a compelling alternative for asset managers that want to make their actively managed strategies available in an exchange-traded fund structure.”

The Newfleet Multi-Sector Unconstrained Bond ETF2 will be the first new offering managed by a Virtus affiliate added to the ETFis platform. The fund will leverage the Newfleet Asset Management team’s broad experience in multi-sector fixed-income investing in a strategy that will have the flexibility to capitalize on opportunities across all sectors of the bond markets, including evolving, specialized, and out-of-favor sectors, as it seeks to deliver relatively high income and an attractive total return. A registration statement for the fund has been filed with the SEC.

The transaction is expected to close in March. Terms were not disclosed. Paul, Weiss, Rifkind, Wharton & Garrison LLP acted as legal advisor to Virtus. Haynes & Boone LLP acted as legal advisor to ETFis.

Forward-Looking Information

This press release contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions and projections about our company, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in our most recent Annual Report on Form 10-K or in any of our filings with the Securities and Exchange Commission (“SEC”), which are available on our website at www.virtus.com under “Investor Relations.” All of our forward-looking statements are as of the date of this release only. The company can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

For the entire article from MarketWatch, click here.

 

ETF News

An ETF For The Mile-High Club

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MarketMuse update courtesy of Zacks.com from Nasdaq.

The U.S. aviation industry has been on cloud nine since the oil price succumbed to gravity.  Moreover, a pickup in the domestic economy, rising cargo demand, a boost to tourism and the subsiding Ebola scare put the industry in the top-performing category.  The sentiment around the sector was so bullish that Airlines rocketed to the highest level since 2001 in late December, per Bloomberg. 

Investors should note that the ETF industry was largely unable to reap the return out of this booming industry as Guggenheim closed the last airline ETF Guggenheim Arca Airline ETF (FAA) in 2013. Prior to that, Direxion Airline Shares ETF (FLYX) had also faced the same fate in 2011. However, to fill the void, a new airline ETF has been filed lately. The fund looks to trade under the name of U.S. Global Jets ETF (JETS) . 

The Proposed Fund in Detail 

The passively managed product intends to track the U.S. global Jets Index that considers worldwide airline companies, per the prospectus. The index attaches weight to the companies on the basis of the square root of their average daily volume seen in the trailing three months. The index looks to consider 25 to 40 airline stocks across the market. The product will charge 60 bps in fees. 

How Does it Fit in a Portfolio? 

The global aviation industry holds a steady outlook for 2015. The outlook is especially positive for the U.S. economy, with GDP growth gaining momentum. Consolidation benefits, growing travel demand and enhanced ancillary revenues also provide an impetus for growth. Other regions including the Middle East, Latin America & Africa and Asia-Pacific also hold promise. 

Several Gulf-based airlines continue to build up their positions within the global airline industry. Fleet development should improve over the coming years. Apart from the high demand from the oil rich Gulf nations, a major part of the fleet demand will be driven by China and India, and continuous expansion of low budget carriers around the world. 

If this was not enough, an unexpected plunge in oil prices turned out to be the real catalyst in propelling the industry. Airline profit outlook depends on fuel prices, the major variable component in the industry. The oil price drop of about 50% seen in 2014 is yet to turn around in 2015. In such a bullish backdrop, the upcoming airline ETF has every reason to be successful, if it gets approval. 

ETF Competition 

The road ahead for the proposed ETF is nothing but clear skies. The industry has long been waiting for such a product after the shutdown of the Guggenheim fund. While there are no direct competitors to the product, investors should note that two transportation ETFs, namely iShares Transportation Average ETF ( IYT ) and SPDR S&P Transportation ETF ( XTN ) have weight in the airlines industry. While IYT puts about 45% of its weight in the airlines, air freight & logistics sectors, XTN places about one-fourth of the fund in them. 

We expect the newly filed product to cash in on the underlying sector’s allure and find a solid following among investors. Nonetheless, the two transportation ETFs could eat into the proposed fund’s asset base because of the formers’ diversified approach to the transportation sector. Still, investors solely eyeing the global aviation industry would be satisfied by the proposed JETS ETF. 

 

ETF News

New Equity ETF Hopes to Combat Volatility

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MarketMuse update courtesy of Nasdaq’s Len Zacks.

2015 has started out week for the US equity market but Direxion has a plan to change that.

After delivering handsome returns last year, the U.S. equity markets have started the year on a weak note.  Slumping crude oil prices, strong dollar and global growth concerns with Europe fighting deflation, Japan still struggling in a recession and China losing steam, are weighing upon the market sentiment, leading to increased market volatility.

As a result, low volatility funds are gaining immense popularity as they provide improved risk adjusted returns in a choppy market. Given the trend, Direxion has recently filed for a product focusing on this niche segment

Below, we have highlighted some of the details of the newly filed product.

Direxion Value Line Conservative Equity ETF

As per the SEC filing, the fund seeks to track the Value Line Conservative Equity Index. The index consists of roughly 170 U.S. stocks that have been selected using Value Line’s proprietary Safety Ranking. The ranking methodology measures the total risk of a stock and its capability to withstand an overall equity market downturn relative to the other stocks in the Value Line universe which consists of roughly 4,000 stocks.

The total risk or volatility of each stock is measured through its Price Stability Score and Financial Strength rating. The Price Stability score for a stock is based on a ranking of the standard deviation of weekly percentage changes in the price of the stock over the past five years.

For the Financial Strength rating, a number of balance sheet and income statement factors like the company’s long-term debt to total capital ratio, short-term debt and amount of cash on hand are reviewed to assign a ranking.

Sector-wise, consumer staples and health care form a large part of the index.

How Does it Fit in a Portfolio?

The product could be an interesting choice for investors seeking to avoid market volatility but remain invested in stocks.  Low volatility products have proven beneficial for investors given their superior risk adjusted returns.

These funds have gained immense popularity in the past few months given increased market volatility on the back of global growth concerns, slumping crude prices and worries related to the timing of interest rate hike in the U.S.

For the complete article on Nasdaq’s site, click here.

 

ETF News

Winklevoss Twins’ Bitcoin Trust ETF Makes Progress to go Public

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MarketMuse update courtesy of extracts from Tom Lydon’s 31 December ETF Trends story.

The Winklevoss twins, Cameron and Tyler, famed for suing Mark Zuckerburg, claiming he stole Facebook from their own social networking site ConncetU, have started another new venture.  In April 2013, they claimed that they owned of 1% of all Bitcoins in existence. The Winklevoss twins now prepare to sell their Bitcoin shares on the Nasdaq.

Slowly but surely, Cameron and Tyler Winklevoss’ Bitcoin Trust is putting the final touches on its proposed cryptocurrency-backed exchange traded fund, filing for shares on the Nasdaq.

On Wednesday, the Bitcoin Trust filed with the Securities and Exchange Commission to sell 20.1 million shares on the Nasdaq exchange, reports Ciara Linnane for MarketWatch. The filing did not include a launch date or expense ratio, indicating the Bitcoin Trust is not close to coming to market.

In May, a regulatory filing revealed the Winkelvoss Bitcoin Trust will trade on the Nasdaq. In July, a Form S-1 filing with the Securities and Exchange Commission reveled the ETF, assuming it comes to life, would trade under the ticker “COIN.”

“The investment objective of the Trust is for the Shares to reflect the performance of the price of Bitcoins, as measured by Winkdex, less the expenses of the Trust’s operations,” according to the SEC filing.

The brothers have also introduced the bitcoin index, or so-called Winkdex, which will also be used to price the value of assets held by the Winklevoss Bitcoin Trust.

The trust’s sponsor is Math-Based Asset Services LLC, which was formed in mid-2013. The company will run the new benchmark, tracking bitcoin prices based on “qualified bitcoin exchange transaction data… over a trailing two-hour period,” according to the SEC filing.

Bitcoin is one of the more popular digital currencies available. The cryptocurrency can be stored and traded electronically. The currency is stored in a digital wallet and is traded through a downloadable software or through a third party provider. The main thing traders should understand is that the Bitcoin is itself is considered a form of currency and not just an online service to transfer U.S. dollars.

Many users utilize the currency because the bitcoin is decentralized – there is no central bank issuing or monitoring the currency. Every transaction is validated by a Bitcoin miner – miners are entities within the Bitcoin network that validate the transaction by solving a mathematical proof. This system prevents double counting of Bitcoins and keeps a record of all transactions.

Bitcoin prices have gained widespread attention when the value of the currency skyrocketed above $1,000. However, the cryptocurrency has stumbled in 2014, declining 58.7% year-to-date to about $315.

For Lydon’s original article from ETF Trends, click here.

ETF News, slider

Best ETFs for 2015 

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After yesterday’s post regarding 2014’s Best and Worst ETFs, NASDAQ has release a list of the 5 best ETFs to buy for 2015. Below are excerpts from the article. 

With the clock about to roll past 2014 and into the New Year, it’s time for investors to be looking ahead with regards to their portfolios. That can be a daunting task, however, as it’s difficult to predict exactly what will happen over the progression of a year.

ETFs are intraday tradable baskets of stocks or other assets that make playing various global trends — both short and long-term — easy. And as some trends are already beginning to emerge, we can use them to tweak our portfolios accordingly to maximize profits.

The iShares MSCI USA Minimum Volatility ETF

With regards to the United States, all signs point to sunny with a slight chance of recession.

For the most part, things are going pretty good. Job growth seems to be picking up, while lower gas prices have consumers dancing in the streets. The unfortunate thing is that falling oil prices have the potential to cripple one of the main drivers of the recent U.S. growth.

Add in the fact that the Fed’s loose monetary policy has pushed investors into riskier assets in order to find returns/yield and you have a recipe for increased volatility.

Which is why the iShares MSCI USA Minimum Volatility ETF (USMV) maybe a good bet.

USMV uses screens to kick out high-volatility stocks and capture the upside of the market. That also limits the downside as well as the “bounciness” associated with market movements. Currently, the $34 billion ETF holds 159 different stocks, including Becton, Dickinson and Co. (BDX) and Wal-Mart Stores, Inc. (WMT).

USMV’s underlying index has done a good job of fighting volatility and downside risk. Back in 2008, the broader MSCI USA index was down 37% while USMV was only down 26%.

While the chance of recession is small, it is building. At just 0.15% in expenses, USMV is a cheap way to fight that potential and is a one of the best ETFs to buy for 2015.

Vanguard FTSE Europe ETF

Despite the headwinds, both the Dow Jones Industrial Average and the S&P 500 are sitting at all-time highs. That doesn’t make them screaming buys at the current moment. But European equities just might be.

Currently, European stocks can be had for a 40% discount to their American counterparts. That in of itself is tantalizing. However, the real boost may come from various QE programs being enacted on the continent. That should boost asset prices in the near term.

The Vanguard FTSE Europe ETF (VGK) tracks the FTSE Developed Europe Index and includes both large and mid-cap stocks in Europe. Top country weights include the U.K., Switzerland and France.

All in all, VGK holds 528 different stocks. That makes VGK a prime play on Europe’s cheapness and potential growth in 2015.

Add in Vanguard’s commitment to running cheap funds — VGK only charges 0.12% in expenses — as well as the ETF’s 3.81% dividend yield and you have a great ETF pick for 2015.

For the rest of the list from NASDAQ, click here.

ETF News, Tech Talk

What’s Next for ETF trading?: NASDAQ’s “iNAV pegged order types”

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The Nasdaq stock market submitted paperwork to regulators proposing fuller use of intraday net asset values (iNAV) in the pricing of equity ETFs, arguing that the integration of such a real-time pricing mechanism will limit the poor trade executions that dog the world of exchange-traded funds.

While ETF traders and market makers would still be able to use plain-vanilla market orders to transact, the second-biggest U.S. stock exchange said the ETF iNAV pegged orders it is proposing constitute a viable way to capture changes in ETF prices that will truly reflect the fact that iNAV is updated every 15 seconds.

Nasdaq noted that under the prevailing system iNAVs are typically calculated using the last sale prices of the fund’s components. But it stressed that iNAVs can vary from the fund’s market price and/or can be valued outside of the fund’s prevailing bid/ask spread as a result of the supply and demand characteristics of the fund and/or liquidity present in the marketplace.

“The INAV Pegged Order type will be available for all U.S. Component Stock ETFs where there is dynamic INAV data and will offer market participants a greater level of transparency as to fair value, by bringing what has historically been a post-trade analytics tool into the pre-trade environment,” Nasdaq said in the filing that was dated Oct. 12.

“More importantly, the INAV Pegged Order should minimize the disparity between the market execution price and the underlying fund’s value,” Nasdaq said. “As the INAV changes, so move the INAV Pegged Orders.”

The exchange said that under its proposal, which is an amendment to Rule 4751, should the iNAV data feed for a particular ETF be compromised or temporarily stopped being disseminated, it would suspend the use of the iNAV pegged order type for that ETF until it was confident the system’s integrity had been restored.

“ETF Sponsors routinely deal with investors that have been subject to inferior executions,” the filing said. “These complaints are almost unanimously as a result of people using market orders where the prevailing bid/ask in the market does not necessarily correlate to the fund’s value, and the quoted size does not meet the demand of the order. The INAV Peg will also help to protect investors against any unintended overpayment for the security.”

Nasdaq said that if the SEC approves its rule change proposal, it could become effective in no sooner than 45 days, though the commission could request extra time to deliberate as to whether the rule should be approved.

The exchange also solicited public comments, data and arguments regarding the proposal.

Tech Talk

Exchanges Duel With Newcomers Over Trading Transparency; Payment for Order Flow Debate

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June 26, By Nathaniel Popper

MarketsMuse Editor Note: In what might prove to be the catalyst for even greater scrutiny of securities industry practices re market transparency, below extracts of article from front page of NY Times June 26 Business Section i.e. profile “lit” v. “dark” liquidity centers–and the nuances by which investor order flow is administered, and the impact on market integrity makes for a good read.

While most people trading stocks at home imagine their orders zipping from their brokers onto one of the nation’s stock exchanges, almost none of the trades go anywhere near those public markets.

In reality, most trades placed through online brokers like TD Ameritrade and Scottrade are sold to Wall Street firms, which accumulate and trade against tens of millions of these shares a day, rather than send them to a regulated exchange like Nasdaq or the New York Stock Exchange. The Wall Street firms then quickly flip them and turn an easy profit because they have more resources and market knowledge than mom-and-pop investors.

The trading, which takes place away from the gaze of regulators and the public in what are known as the dark markets, has taken off in recent years and steadily eaten into the portion of all stock trading that takes place on the public exchanges. Now, though, the exchanges are fighting back by looking to create dark markets of their own.

NYSE Euronext, the company that owns the exchange, is asking regulators to approve a new platform that would attract orders from ordinary investors and then divert them away from the normal exchange with the aim of getting the investor a better price. Nasdaq and the exchange company Direct Edge said they have similar plans in the works.

The proposal looks like a technical tweak to help ordinary investors. But it has become the front line in a battle over what the nation’s stock markets should look like after nearly a decade of fragmentation has resulted in over a third of all stock trades occurring in the dark, up from 15 percent in 2008, according to Rosenblatt Securities, a brokerage firm.

In the past, the exchanges have pushed regulators to force the dark markets to become better lit, but James Allen, the head of capital markets policy for the CFA Institute, said that with the new proposals the exchanges are acknowledging “that if you can’t beat them, join them.”

The practice [payment for order flow] took off after a series of regulatory changes over the last decade made it easier to trade off exchanges and more expensive to trade on exchanges. Today, four firms — Knight Capital Group, UBS, Citigroup and Citadel — have made a business out of paying for retail trades and trading against them. These firms generally pay retail brokers 15 cents for every 100 shares they are sent to trade against, industry experts say.

“…The retail brokers contend that the internalizers allow them to get the quickest and best execution for their customers…” Continue reading →

ETF News

NASDAQ New Rule: ETF Issuers Can Pay Market-Makers Quoting “Thinly-Traded” products

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As duly noted by industry expert TABB Forum, ETFs with little-known or illiquid underlying securities are a hard sell without liquidity.  “Whether you loved or hated them, major exchange specialists (including this blogger) played a vital role to help nurture small listings, and the problem of how to incent liquidity provision is an ongoing industry debate. Without an extra incentive, market makers don’t consider it worth the risk..”

NASDAQ apparently understands this challenge. As reported by TABB, and in a rule filing submitted to the SEC, the exchange that will soon be home to Facebook proposes to put ETF issuers in the driver’s seat by facilitating issuer payments to market-makers in consideration for those traders quoting and trading those pesky, “hard-to-trade” aka “illiquid” ETF products that seem to trade by appointment only.

According to the TABB piece, “..The rule filing is waiting to be ‘noticed’ by the SEC, which will start turning the wheels of the rule filing and formal commentary process. If ultimately approved, the writing is on the wall for equities.There is little on the regulatory table at the moment to improve market quality, but prior success of a similar program abroad and political concern over how to improve the lot of smaller securities at least gives this proposal a decent chance of making it to the pilot…”

Not everyone fully agrees. At least one former ETF market-maker who was invited by NASDAQ to help formulate their new proposal believes it could open Pandora’s box (even if some think the Genie is already out of the bottle..) Continue reading →