In their never ending quest to increase THEIR bottom line and to continue to break the broken pieces of this fragmented market, NASDAQ is introducing new Alpha Indexes.  According to their website, “Each NASDAQ OMX Alpha Index^TM is comprised of a Target and Benchmark whereby the relative total return performance is calculated daily by comparing price returns and dividends to the previous trading day.”  They give an example of the Nasdaq Alpha AAPL Index, ticker symbol AVSPY – “The AVSPY level was at 131.00 on 6/22/10. This means AAPL’s total return performance relative to SPY year-to-date was +31.00% (131.00 – 100.00).”

Seems pretty harmless and not very sophisticated, right?  Not quite.  You see, NASDAQ  is pending SEC  approval to start trading options on these these single stock alpha indeces (http://www.nasdaqomxtrader.com/content/phlx/AlphaFAQs.pdf)

Just think about the fun and games that the HFT world will be having with these instruments.  Think about the advantages that those with the fastest data feeds and colocated computers will have.  And think about all those fees that the exchanges will collect from these new products.  Nasdaq will disseminate the index information via its NASDAQ OMX Global Index Data Service (GIDS ) and its NASDAQ OMX Global Index Watch (GIW).  And of course you can buy access to a direct feed for these indeces.   The GIDS feed will cost your firm $2,000/month and the GIW will cost your firm $3,000/month (http://www.nasdaqtrader.com/Trader.aspx?id=globalindexDS)

Rather than trying to fix our fragmented market which was the cause of May 6th, our exchanges continue to focus on creating more products that will aid in fragmentation.  Here’s a thought:  Start focusing more on IPO’s and start trying to help companies list on your exchange rather than just creating more fee generating products.