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CAPITAL MARKETS

Trading fees: NYSE work if you can get it

What’s to be expected from a for-profit monopoly?

Competition between exchanges can deliver benefits to users over the long term but in the short term it quite often delivers a slap in the face, as US brokerages discovered when the New York Stock Exchange announced that it was going to change its fee structure starting from August 1.

When it was still a member-owned utility the NYSE offered its customers a discount for executing large trades. Just four months on from its public listing via its merger with Archipelago, the exchange has abolished that discount and moved to a new fee structure that will charge users on a per trade basis.

The new pricing model is expected to lead to a substantial increase in revenue for the NYSE, at the expense of its customers, as trading volumes continue to grow on the back of long-term trends such as declining order sizes and the use of algorithms.

Revenue and growth

Under the old pricing structure the NYSE revenues did not grow in tandem with transaction volumes as the unit price decreased as volumes rose. The new pricing structure will link revenues with volume growth.

The new fee structure is similar to those at other for-profit exchanges such as Euronext, the NYSE’s bride-to-be, and the London Stock Exchange and could well become similarly unpopular.

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