December 17, 2013
34-71055 Dec. 12, 2013 Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Fee Schedule under Exchange Rule 7018(a) with Respect to Transactions in Securities Priced at $1 per Share or More
i am having trouble with this rule request because i notice that:
1) NASDAQ disadvantages the retail investor with several mechanisms. they pay brokers for order flow. they set the bar for payment at the $1 level. several of the stocks under $5 are referred to penny stocks. a small movement in relation to price yields a higher profit for the penny stocks.
2) NASDAQ does not report all transactions as long or short. it would be very easy to check if the # of shares reported were the # of shares traded that day, but NASDAQ does not calculate this so that they can underreport the # of shares to FINRA. although orders are traded on the NASDAQ computer system, NASDAQ does not submit many trades to FINRA for the daily short report. NASDAQ's daily report does not necessarily include all shares traded that day and, as a result, the stock that is being underreported may not be reported on the NASDAQ reg SHO list. i think NASDAQ seeks to keep the public disadvantaged by underreporting shares traded to the regulators so that they underreport shares traded to the public. i can only think that NASDAQ's staff, NASDAQ's board, and the regulators believe that the public doesn't want the information that is required to be reported. this is not the case. the public wants the information but NASDAQ refuses to publish accurate information.
3) NASDAQ releases some information that many brokers offer to their customers called "level 2" access. this means that some orders are not visible. NASDAQ has determined that members should pay them a very high fee in order to have better information than any information that the public receives. NASDAQ has developed a tiered pricing formula to extract higher fees from some traders but provide much better information in return for higher fees.
4) exchanges should not pay brokers for order flow. it is unnecessary and it costs the investing public. while several brokers say that these disadvantages are to the public's advantage because the public pays a lower commission, the practices that grew up around a paid order flow and advantaging some traders cost the public much more $. the public does not want to be disadvantaged in the capital markets, no matter if they pay a few dollars less commission so they can suffer the information disadvantages. in my opinion, NASDAQ's business model is flawed in this respect and this rule request is an attempt to keep the public disadvantaged so that everyone else with better connections to the exchange make money.
these things appear to disadvantage the retail investor in favor of professional traders. shortsellers are favored over retail investors because they may get paid for order flow and the public information about the amount of shortselling in NASDAQ's exchange is underreported.
if an exchange colludes with brokers to disadvantage the public, then it might be a conspiracy, rather than a good business model.