GS is considering moving from an implicit fee structure to a commission based one, in line with the widespread view that trading is less profitable after the market?s conversion to penny increments, according to a letter and a research report sent to clients this week.
The proposal comes in reaction to a shrinking of trading profits brought on by narrowing spreads following decimalization.
The proposal follows Nasdaq’s recently released report, filed with the Securities and Exchange Commission (SEC) on the impact of decimalization, which noted that since the conversion, spreads in Nasdaq stocks have fallen by an average of 51% on average, and up to 71% in its most actively traded stocks.
Implicit to Explicit
It is now proposing a move from implicit fees for institutional trades in Nasdaq stocks, as currently practiced, to commission-based fees, since smaller price increments can allow implicit fees to move a trade outside the best quote price range available at a specific time.
The current system of implicit pricing also makes those trades less competitive when compared to similar orders from electronic communications networks or online retail brokers, which do not include such fees.
The switch to commission-based or explicit fees would bring trading in that market more in line with the listed market of the New York Stock Exchange.
– Camilla Klein email@example.com
Read more at Nadsaq Reports Smooth Sailing with Decimal Switch