U.S. SEC scuttles Nasdaq options rebate plan

NEW YORK, July 17 Thu Jul 17, 2014 12:18pm EDT

NEW YORK, July 17 (Reuters) - The U.S. Securities and Exchange Commission has denied a plan by Nasdaq OMX Group Inc to offer rebates to some of the biggest customers of one of its options exchanges, based on the amount of trading they do across all three of Nasdaq's options markets.

Nasdaq's plan would have run afoul of rules stating that an exchange's fees cannot be unfairly discriminatory or hinder competition, the SEC said in an order posted on its website on Thursday. (1.usa.gov/UcwDvi)

The U.S. options market is fiercely competitive, with 12 exchanges owned by six different exchange operators, including Nasdaq, Intercontinental Exchange Inc, and CBOE Holdings Inc. There are also 11 U.S. stock exchanges, many owned by the same corporate parents as the options exchanges, and dozens of bank- or broker-owned private trading venues.

By having more than one exchange, the parent companies can offer more than one type of pricing model, allowing them to target different types of customers. Under U.S. law, each exchange is supposed to compete with the others, even if they are owned by the same parent.

Had Nasdaq's plan been allowed, it could have had far-reaching effects on competition, pricing and complexity across the financial markets, as it would have effectively broken down the walls between the units of the big exchange operators.

That idea alarmed smaller rivals, such as Deutsche Boerse's International Securities Exchange and MIAX Options Exchange, which said in letters to the SEC that tearing down those barriers would allow Nasdaq and other large operators to offer pricing that they could not compete with.

"Can exchanges that supposedly compete against each other cooperate to establish joint fees?" ISE wrote in a letter to the SEC. "We believe that the answer is a resounding 'No.'"

Nasdaq will evaluate the SEC's decision and the company's options before deciding whether to pursue the matter, a spokesman said on Thursday. (Reporting by John McCrank; Editing by Tom Brown)

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