The National Stock Exchange relaunched on Tuesday with a low-cost model its new management says will challenge current industry practices and could save U.S. investors billions if adopted market-wide.
NSX reopened as the 12th U.S. stock exchange following a shutdown of more than a year-and-a-half due to a lack of trading volume. It will charge 3 cents for every 100 shares it matches and will not charge anything for buy and sell orders posted there.
Most U.S. exchanges charge 30 cents per 100 shares executed and provide rebates that can be more than 30 cents per 100 shares posted as an incentive for brokers to provide liquidity, aimed at making it easier for others to get trades done.
Exchange fees and rebates have been the subject of intense debate in recent years.
Many brokers, proprietary trading firms and institutional investors say exchange fees, which subsidize rebates, are too high, forcing them to send their orders to cheaper, broker-run, private trading venues. Critics say the system creates conflicts of interest as brokers may seek the highest rebates for their clients' orders rather than the best prices.
"We're going to go out with an aggressive model that drastically lowers access fees and addresses these concerns about rebates," NSX Chief Executive Mark Sulavka said in an interview.
The industry would save over $2 billion a year in exchange fees if the market as a whole were to adopt NSX's fee model, and more than $1.5 billion a year in rebates would be removed, he added.
Exchange operator Nasdaq Inc lowered its fees and rebates for a number of stocks in a temporary experiment earlier this year and found it lost market share in those stocks as many trading firms sought higher rebates elsewhere.
Jersey City, New Jersey-based NSX, which first launched in 1885 as the Cincinnati Stock Exchange, also has a flat fee structure, unlike the tiered model used by most exchanges, and does not let customers pay to co-locate their servers next to its matching engines to gain a speed advantage.
NSX will compete against exchanges run by Nasdaq, BATS Global Markets, Intercontinental Exchange Inc, the Chicago Stock Exchange and around 40 private trading platforms, including IEX Group. IEX has applied with regulators to launch an exchange that also uses a flat pricing structure with no rebates and other features aimed at disrupting the current model used by most exchanges.