National Stock Exchange Officials Discuss Exchange's Relaunch, Plans to Attract Investors

After shuttering its trading operations in May 2014, the National Stock Exchange (NSX) has relaunched its trading operations for equity securities and exchange-traded funds (ETFs).

On December 14 the Securities and Exchange Commission (SEC) approved NSX's bid to relaunch. The NSX, which was previously owned by CBOE Holdings and was bought by a consortium of investors, is doing away with the traditional maker-taker pricing system, in favor charging $0.00 to post liquidity and $0.0003 to remove liquidity.

Mark Sulavka, chairman and CEO of NSX, tells WatersTechnology that many of the largest institutional firms like BlackRock and Vanguard have been writing papers asking for market rates to be reduced. Sulavka believes that by keeping fees low, it will help to bring in customers.

"These are the largest participants in the space...asking for access fees to get lower," Sulavka says. "We hear a lot of talk [about reducing fees], but we're here to take action. ...We have a very simple motto: everybody connects through one set of connections that's hosted with a partnership at the Chicago Board of Options; no one is in our cage; you connect to the market data equally; there's not advantage and tiering in our models."

Bill Karsh, former CEO of Direct Edge, is now serving as special advisor to the National Stock Exchange. He adds that by providing fairness and transparency to the marketplace, they will attract institutional investors.

"We're not offering colocation or proximity hosting. We're not charging for connectivity; we only charge for logic reports. We're not differentiating how people use our market data; we're using one flat fee, all you can eat," Karsh says. "So when we talk about a low-cost utility exchange that is hopefully going to be speaking for the broker-dealer community, as Mark says, we're not only talking the talk, but we're walking the walk. We're aggressively keeping costs down to be a low-cost alternative to," the likes of NYSE, Nasdaq and Bats.

‘The Cycle is About to Turn'

In 2014, the exchange had to shut its doors because of shallow trading volumes, accounting for only 0.2% of stock market trading on its last day of operations, according to The Wall Street Journal. Including Jersey City, N.J.-based NSX, there are now 12 stock exchanges populating the US marketplace, with the highly-publicized IEX Group potentially gaining approval in 2016.

It's easy to compare the 130-year-old NSX ─ formerly the Cincinnati Stock Exchange ─ to that of IEX. Both aren't offering colo and both aren't selling faster data feeds to users who can afford to pay a premium.

Kevin O'Hara, also a special advisor at the NSX who brings with him over 25 years of experience, including stints at NYSE and the SEC, says that the two exchanges will still look to attract volumes in different ways, but what this does show is that after a period of consolidation, more entrants are likely to look to get back into the game.

"In terms of whether or not they're a competitor, I don't know," he says. "But what I think that they are showing ─ much like an earlier group of entrants: Archipelago, Island, Instinet and the like ─ is that we've gone through a round of entry and then consolidation. It's part of our vision here, in part because of what's happened over the last five or 10 years of consolidation, is that the cycle is about to turn. We're at the right place and at the right time for the cycle to turn again in terms of innovation and entrepreneurship coming back in. We're just a reflection of IEX; they have different ideas and a different team than us, but the cycle has turned again. They are both a competitor and, to another extent, a like-minded entrepreneur entering the market at the same time as we are."

All Quiet on the Tech Front

NSX is comprised of about 40 full-time employees. Joining Sulavka on the technology side will be Mark Leischner and Jeffrey Diedrich. Leischner, NSX's chief information officer, had previously served as a managing director at NYSE for nine years. Diedrich, the group's chief technology officer, had worked with Sulavka at Platform Technologies, Inc. for 17 years, and at OpenMatch Holdings for four years.

In a press release announcing the relaunch, the company said that it plans to "offer new market models and technologies...that deliver solutions to long-standing market structure problems" and that it would focus on "[rolling] out technology that structurally improves the relationship between brokers and their buy-side institutional clients."

When pressed for specifics on what the exchange had instore for 2016, Sulavka says that they are focused on the regulatory positioning and they can't talk right now about specific platforms. O'Hara adds that they are "in talks with the SEC and there's a lot more talking that we have to do to build this into a rule set and ultimately get approval," he says.

The relaunch will feature a phased, three-tier roll-out of all equity and ETF symbols, which will be completed on Dec. 31. Today marked X to Z listings. Monday will be A through H, and the rest will be rolled out on Dec. 31. On January 4, all symbols will be live.