Nasdaq Execution Platforms: Compete and Cooperate
Over the past decade, there has been a rapid shift in the global trading landscape. The global markets ecosystem is continuously evolving with new capabilities, participants and competitors. With competition continually on the rise, market participants are looking for alternative/complementary ways to meet their business goals and execution needs via internalization and venue creation as a means to differentiate and gain a competitive edge.
However, not all trading technology is created equal, and internalization requires significant investment. As a market operator and technology provider, Nasdaq is keenly invested in bridging this gap by enabling firms to work better with each other and better compete overall. There are four key areas where this can be directly beneficial to firms – consolidation of order flow, defining and controlling counterparty interactions, information control and of course, performance. In this piece, we’ll investigate each of these a bit further.
CONSOLIDATION OF ORDER FLOW
Today, firms across the country send their order flow to a variety of counterparties that offer Price Improvement or EQ. In certain circumstances, these same firms (based on asset class) can and do receive Payment For Order Flow or PFOF. With the Nasdaq Execution Platform, firms can consolidate their order flow in a new, centralized location, giving them control of pricing while promoting engagement where counterparties can offer greater price improvement than currently available.
This ideation has the potential to boost competition tremendously while raising the positions of all firms that want to cooperate. Rather than opening their liquidity to a small number of firms, their order books would be accessible to any firm they choose to do business with street-wide. Nasdaq Execution Platforms allow organizations to take control of their order flow, set the ground rules, which will allow them to price more aggressively, ultimately transferring the benefit to their clients.
DEFINING AND CONTROLLING COUNTERPARTY INTERACTIONS
By consolidating their order flow in a new centralized location, firms can increase engagement with counterparties and take control of their pricing. Today, firms have a limited pool of counterparties to do business with daily. There are only a handful of venues that offer large enough pools of liquidity to have an interaction. The current counterparty landscape allows others to define and control who trades with whom, at what prices, in what symbols, and at what fees.
Partnering with Nasdaq Market Technology on an in-house platform allows firms to take back control of their counterparty interactions. In turn, driving firms to come to them to compete, allowing them to define and control the narrative, while creating a level of self-determinism with their order flow. Being able to say who, what, and when with one’s own order flow increases competition, improves transparency with their end clients and will reduce costs over the long haul.
INFORMATION CONTROL
Information control is one of the key advantages of being a large trading firm. These firms have the ability to control what order information is shared through various forms of segmentation logic.
The Nasdaq Execution Platform provides a voice to even the smallest firms who decide to take control of their liquidity. Firms that did not have a voice will be able to decide who to display their orders too, based on metrics they feel are in the best interest of their firm.
PERFORMANCE
Performance has always been a hallmark of Nasdaq as the world’s first electronic stock market. Nasdaq Execution Platforms delivers premium technology allowing our partners to leverage exchange-grade speed, performance, and resiliency.
When the height of the COVID-19 pandemic wreaked havoc on markets, Nasdaq trading technology handled 60 billion messages per day. This is a testament to resiliency and reliability that accompanies a partnership with Nasdaq and demonstrates the urgency of operating on robust technological infrastructure.
COMPETE AND COOPERATE
Lastly, it is our belief that firms are ready to compete and cooperate with one another now more than ever. Exchanges, OTC, and Dark Venues now have the option to trade in an entirely different way. This means that groups of firms as small as 10 and as large as 100 can have small internal trading venues that allow them to consolidate their order flow, determine how they interact, reduce costs, and increase transparency with their clients.
Furthermore, this transition has the potential to drive competing financial firms to cooperate and ultimately create a more nimble and robust market for participating firms.
While Nasdaq encourages lit, transparent execution for the benefit of investors everywhere, we recognize that ecosystems are evolving with new capabilities, participants and competitors. As a technology partner to the industry, Nasdaq is here to support firms. The best-in-class technology capabilities, reliable scalability and resiliency of Nasdaq platforms ensure that firms are positioned to compete in tomorrow’s markets in line with regulatory standards so that they can unlock and accelerate opportunities today.
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