NYSE Says NASDAQ's Plan Would Threaten Competition
NASDAQ OMX's (NASDA: NDAQ) Board approved creation of a $40 million fund that would accommodate those affected by trading glitches on the day of Facebook's IPO. Around $13.7 million of the fund would be paid in cash and the rest would be provided as trading discounts.
By giving its customers trading discounts, NASDAQ might draw some trades to its exchange from other exchanges, such as the NYSE (NYSE: NYX). NYSE Euronext stated today that NASDAQ's trading discounts would provide NASDAQ with market share gains and be an "undue burden on competition." In addition, NYSE Euronext says NASDAQ's trade discount tactics would be “tantamount to forcing the industry to subsidize NASDAQ's missteps.”
In a CNBC interview after market close today, NASDAQ OMX's CEO Robert Greifeld said that NASDAQ's customers do not necessarily have to give NASDAQ additional market share in order to redeem their trading discounts. Greifeld noted that NASDAQ's customers are brokerages, not retail investors. So, Greifeld failed to reveal plans to compensate retail investors directly for losses related to trading glitches surrounding Facebook's IPO.
NASDAQ is still seeking review of its $40 million accommodations program by the Securities and Exchange Commission (SEC). But would the SEC stop the program for anticompetitive reasons? This seems unlikely, given that maintaining competitiveness is not exactly in its job description.
The SEC's website says, “The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
Perhaps this issue could fall under the category of maintaining fair markets, but claims about anticompetive issues seems to fit more closely with the goals of other regulatory organizations, such as the Federal Trade Commission (FTC) or Department of Justice. One of the FTC's strategic goals is to “maintain competition” and part of the US Department of Justice's Antitrust Division's mission is to “promote economic competition."
So, even if NASDAQ's accommodation plan is approved by the SEC, other regulatory organizations with a greater focus on maintaining competition might still take action.
CORRECT: Shares of NASDAQ OMX closed approximately $0.38 or 1.7% higher today.
Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.
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