More reporting about evils of NASD/Nasdaq trade reporting

By: Ray Pellecchia

File Under: NYSE

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The trade press continue to beat their bigger brethren on this story. Thousands of column inches on Reg. NMS, yet nary a word from the bigs on an issue that I would argue is every bit as important.

Last week, Securities Industry News (subscription only, but blogged here) reported on how Nasdaq could reap big financial rewards for trades that don’t even take placed there, if the SEC approves. This week, Traders magazine weighs in (the article is not yet on Traders’ site).

“Nasdaq's exchange application limits the scope of the new exchange to transactions in the Nasdaq Market Center, previously known as SuperMontage and Brut. These transactions would be executed in price and time priority, traditionally one of the hallmarks of a national securities exchange. But orders internalized by NASD's broker-dealer members orders that may not have price/time priority would be reported through the new TRF. The facility would be administered by the NASD, Nasdaq's former parent. But Nasdaq would receive the revenues, a sore point with Nasdaq competitors.

“McSweeney argued that, with the implementation of Reg NMS, Nasdaq will be receiving $25 million to $50 million in tape revenue that it "has no business accruing." McSweeney says there is no way to hedge the internalization issue. He says it should be banned.”

This story has everything a reporter could want, except sex and violence. It’s got conflict (Big Board and other markets vs. TRF, Rep. Baker vs. TRF, and everyone else whose letters are posted at bottom of this page vs. TRF). Tens of millions of dollars at stake. A company getting something for nothing (Nasdaq). And conflicts of interest (the underlying practice of internalization, putting the interests of markets and broker-dealers at odds with those of individual investors, who generally are unaware of how their orders are being handled).

Being just a dumb blogger and PR guy, I must be missing something.