As if we didn’t have enough market venues and problems due to fragmentation, NASDAQ is planning on launching a third exchange in the third quarter. They already operate NASDAQ and NASDAQ BX and now have an application in with the SEC for NASDAQ PSX. This new exchange will “offer an active price/size priority model for trading U.S. equities” http://www.nasdaqtrader.com/Trader.aspx?id=nasdaqpsx We are sure there are already a bunch of HFT programmers coding to take advantage of a new ”arbitrage” scenario which will form with this new exchange.
Of course, one beneficiary of this new exchange will be NASDAQ. They plan on waiving the data feed charges for the first year. But then, it wouldn’t surprise us to see them to start charging for the data. Another beneficiary is sure to be the HFT community. The more fragmentation, the better for them. The more data feeds that they can take in directly to their super charged, co-located computers, the better chance they will have of beating the slow SIP quote that most institutional and retail investors still rely on.
NASDAQ is likely to sell this exchange as “adding to transparency” but in fact all it is doing is adding to fragmentation.