NEW YORK (Reuters) – Nasdaq Inc (NDAQ.O) has asked regulators to allow it to give small companies a choice of trading on a single U.S. stock exchange, rather than all 13 of them, in an effort to make it easier for buyers and sellers of the stocks to find each other.
Currently, regardless of where a stock is listed, it can be traded across exchanges. While that fragmented model works well for high-volume stocks, promoting competition and price discovery, it does not have the same effect on less liquid stocks, which become harder to trade, Nasdaq said.
“Nasdaq believes that consolidating displayed liquidity for smaller companies onto a single trading venue would help those companies and their investors by facilitating capital formation and improving investors’ ability to source liquidity,” it said in an April 25 U.S. Securities and Exchange Commission filing.
In October, the U.S. Treasury Department endorsed the idea of letting companies decide how many stock exchanges their shares trade on as part of a broader regulatory review.
But the president of Nasdaq rival Cboe Global Markets Inc (CBOE.O) cautioned last week at an SEC roundtable that giving exchanges a monopoly on trading certain stocks could lead to higher market data and exchange connectivity fees, due to the absence of competition.
The move could also create a single point of failure. Currently, if a glitch at one stock exchange prevents trading in certain stocks, those stocks can still trade on other exchanges, as happened on the NYSE on Wednesday in stocks including Amazon.com Inc (AMZN.O) and Google parent Alphabet Inc (GOOGL.O).
On the positive side, the change would potentially reduce complexity and increase market stability efficiency, while making it easier for brokers to ensure they are getting the best prices for their clients.
Under Nasdaq’s proposal, the new rule would apply to companies with an initial market capitalization of less than $700 million, or with a continued market capitalization of $2 billion or less; have an initial average daily trading volume of 100,000 shares or less; and have a bid price greater than $1.
There are 789 Nasdaq-listed companies with less than $700 million in market capitalization that would qualify based on trading volume and share price, Nasdaq said.
The move would make it easier for the exchange to offer new financial incentives or market models, such as periodic auctions, for those names, which could encourage more trading, it added.
Reporting by John McCrank; Editing by Matthew Lewis