Nasdaq proposes exclusive exchange trading for illiquid stocks

By John McCrank

NEW YORK (Reuters) - Nasdaq Inc <NDAQ.O> asked regulators on Wednesday to allow issuers of thinly-traded stocks listed on its exchange to trade almost exclusively on Nasdaq, as part of a broader plan to boost trading in small- and mid-sized companies.

There are 13 U.S. stock exchanges, with at least two more preparing to launch, and a company's shares can be traded on any of them, regardless of whether they are listed on the Intercontinental Exchange Inc's <ICE.N> New York Stock Exchange, or Nasdaq.

The U.S. Securities and Exchange Commission asked the exchanges in October to bring it proposals aimed at making thinly-traded securities, which Nasdaq defined as trading less than 100,000 shares a day, on average, for six consecutive months, easier to trade.

Concentrating all the orders for a stock on a single exchange would help bring buyers and sellers together, while reducing market complexity and lowering trading costs, Nasdaq said in a filing with the SEC on Wednesday.

"Nasdaq proposes to establish a tier nestled within the U.S. public equity markets that is better tailored and far more hospitable to thinly-traded securities than is the all-purpose, undifferentiated market environment in which they suffer today," the New York-based company said.

Shares can also be traded on around 30 broker-run off-exchange trading venues, which would not be affected by Nasdaq's proposal.

Drawing from consultations with market participants, as well as its experience operating a venture exchange in the Nordics, Nasdaq said it would also seek regulatory relief to relax trading and disclosure rules for companies with thinly-traded shares.

For instance, exempting thinly-traded stocks from a rule that says trades must happen at the best displayed bid or offer in the market, would allow the exchange operator to use on-demand auctions to further pool liquidity. And allowing issuers to pay market makers to maintain quotes on their stock could lead to more attractive spreads and more orderly openings and closings of the stock.

Cboe Global Markets <CBOE.Z>, which operates four U.S. stock exchanges, but does not have a corporate listings program, said in a Dec. 20 letter to the SEC that allowing companies to trade on a single exchange would dampen competition and innovation among exchanges.

Those who support the move "criticize the 'one-size-fits-all' market structure in place today," Cboe said.

"Their proposed fix is to limit trading to a single national securities exchange, offering a single market structure. The irony of this solution is not lost on Cboe."

(Reporting by John McCrank; Editing by Andrea Ricci)