An experiment to test the effects of reduced fees and rebates conducted by Nasdaq has failed to gain additional market share, according to an analysis by agency broker ITG.
The pilot scheme, which began on 2 February, saw 14 stocks switch to a 5/4 pricing model from a 30/29 model, significantly cutting prices and rebates.
However, ITG’s analysis of the first 18 days of the programme found that Nasdaq actually lost market share in many of the symbols. Overall quoted volume in January was approximately 20% of the National Best Bid and Offer (NBBO) in February, down from 26% in the previous month.
Traded volume also suffered, down from 36.4% among Nasdaq listed names to 30.2% over the same period.
ITG said it is too early to decide whether the pilot scheme has affected market quality as a whole. It also points out that the drop in market share was more pronounced in the first few days of the pilot, indicating some market participants may have simply been waiting to see how it would affect those stocks before reentering the market.
It has speculated that the decrease in market share is primarily due to high-frequency traders (HFTs) staying away from the exchange due to the lower rebates.
However, for ITG’s clients, many will have seen their orders sent to Nasdaq more frequently as it’s SLimit algorithm has identified shorter queue lengths on Nasdaq stocks due to the pilot scheme. It said that while HFT players have acted negatively towards the change, it appears to be beneficial for buy-side clients who are able to achieve higher queue positions.
Nasdaq is reportedly looking to extend the programme to more names, something ITG supports, though he said it will require the brokerage industry to throw its support behind the model in order to make is a success.