NYSE Beats NASDAQ on Some Trade Costs
January 22, 2001
It costs less to process large, institutional-sized trades on the New York Stock Exchange than on the Nasdaq, according to a study released by the New York Stock Exchange last week. The Plexus Group of Teaneck, N.J. conducted the study.
For large-cap stocks, defined as shares of companies with a market capitalization of at least $10 billion, institutional trading costs were 47 percent lower on the New York Stock Exchange than on Nasdaq last year, according to the Plexus study. For mid-cap stocks, defined as shares of companies with a market capitalization of $1 billion to $10 billion, trading costs were 66 percent lower on the New York Stock Exchange, according to the study.
For small-cap stocks, which are shares of companies with a market capitalization between $100 million and $1 billion, trading costs were 55 percent lower, according to the study.
The fact that it may be more expensive for institutional-sized trades to take place in Nasdaq, is only part of the equation, said Geoffrey Bobroff, president of Bobroff Consultants of East Greenwhich, R.I. "Let's say I pay three-tenths of a percent more [in Nasdaq] but the overall returns, up until these past three months, for the last five to seven years, have been much better in Nasdaq than in NYSE. One could argue that he might be paying a little more but overall, he's doing better. The commission issue is an important point but it can't be looked in a vacuum. It has to be looked at in a context."
Mutual fund managers consider commissions but that factor alone will not cause them to move business from one exchange to another, said Bobroff.
"They have an obvious obligation, to make sure they are getting price and execution," he said. "Part of the definition is the commission rate. But the cost is not the only part the investor should be concerned about."
Unusually high market volatility on the Nasdaq in 2000 helped to boost trading costs, Nasdaq said in a statement. Plexus data for 1999 showed that average trading costs were lower on Nasdaq than on the New York Stock Exchange, he said.