NEW YORK (Reuters) - Nasdaq Inc (NDAQ.O) has urged regulators to reject a proposal by rival exchange operator Bats to compete for stock orders at the market close, saying it would undermine Nasdaq’s closing process and harm publicly-listed companies and their shareholders.
Bats said in May it planned to offer brokers a type of order that would give them the same closing prices derived from the closing auctions on Nasdaq and the New York Stock Exchange for stocks listed on those exchanges, but with lower execution fees.
The move by Bats, which only lists ETFs and the stock of its parent company, CBOE Holdings (CBOE.O), would fragment the market close and result in less accurate pricing, Nasdaq said in a letter to the U.S. Securities and Exchange Commission dated June 12.
If Bats were allowed to compete for market close orders it would give it a bigger shares of the trillions of dollars in trades when fund managers execute most of their orders at the end of the session, pricing assets off closing prices on exchanges where they are listed.
“With its proposal, Bats is not only failing in its responsibility to contribute to market transparency and price discovery, it is also impeding the ability of other national securities exchanges to do so,” Nasdaq’s General Counsel, Edward Knight, said in the letter.
Bats said its decision to offer “market-on-close” (MOC) orders was a result of its customers complaining that fees on listings exchanges are too high.
Trading firms Virtu Financial (VIRT.O) and PDQ Enterprises, as well as agency broker Clearpool, threw their support behind Bats in separate letters to the SEC.
“We believe that the Bats Market Close will introduce much needed competition to the markets,” Clearpool said. The “time is ripe for exchanges to price their offerings more competitively and equitably,” it added.
If approved by the SEC, Bats would let market participants send in MOC orders to be pre-matched with other such orders 25 minutes before the 4 p.m. market close. The trades would be executed when the primary exchanges’ closing prices were published. Orders that are not pre-matched could be sent to the primary exchanges’ closing auctions.
Knight said Bats was attempting to “free-ride” on the efforts and investments the listings exchanges have made toward their closing processes and that the proposal would undermine price discovery by diverting orders to Bats.
NYSE has also blasted the Bats proposal, saying that diverting trades away from closing auctions would add to volatility and distort prices.
Reporting by John McCrank; Editing by Andrew Hay