Direct Edge Will Cut Transactions Costs on Amex-Listed Stocks 2007-10-30 09:47 (New York) By Edgar Ortega Oct. 30 (Bloomberg) -- Direct Edge ECN LLC, the electronic equity market that's partly owned by Knight Capital Group Inc., will lower transaction costs next month to challenge Bats Trading Inc. for a bigger slice of the 6.5 billion shares that trade each day in the U.S. Direct Edge will increase by 35 percent the rebate it pays brokerages on some orders for shares in companies listed on the American Stock Exchange. The new refund exceeds by 3 cents the rebate paid by Bats Trading for every 100 shares traded. Bats's gains in Amex listed stocks have helped it grow into the fourth- biggest U.S. equity market by number of shares traded. ``We haven't been competitive on that front, but given how successful we've been elsewhere, this is a tactical investment to continue that momentum,'' Direct Edge Chief Executive Officer William O'Brien said in an interview. ``No pricing change is permanent, but we believe we can sustain it.'' Competition among exchanges and broker-owned electronic markets has intensified this year, spurring fee cuts at NYSE Euronext and Nasdaq Stock Market Inc. and the American Stock Exchange. Nasdaq and NYSE Euronext each match about a third of the Amex-listed shares bought and sold in the U.S., according to data on exchange's Web sites. Bats Trading matches about 8 percent, spokesman Randy Williams said. NYSE Euronext this month cut some transaction costs in half on its Arca electronic market. Bats Trading raised its rebate on NYSE-listed shares for the final three months of the year, seeking to retain market share gains after it lured traders in September with a $10 million promotion. Rebates and Fees The rebate Direct Edge will give for orders in Amex-listed stocks will be bigger than the fee it charges to execute trades. For example, a broker sending an order with specific price information will get a rebate of 35 cents per hundred shares. Direct Edge will charge a broker who acts on that order 26 cents per hundred shares. Bats Trading has had a similar fee structure in place since April. It pays a rebate of 32 cents per hundred shares and charges brokers who act on the orders 24 cents. ``We continue to evaluate our pricing structure and believe we have the most aggressive pricing among major market centers,'' said Bats Trading's Williams. The new fees at Direct Edge are a prelude to moving away from the Alternative Display Facility to disseminate quotes to investors, O'Brien said. Unlike the National Stock Exchange or International Securities Exchange Holdings Inc., the ADF, which is operated by the Financial Industry Regulatory Authority, doesn't share market data revenue with markets. `Near-Term Priority' ``It's not a matter of if but when we move from the ADF,'' said O'Brien, a former Nasdaq senior vice president who joined Jersey City, New Jersey-based brokerage Direct Edge in July. ``It's a near-term priority.'' Knight Capital, the No. 2 matchmaker for Nasdaq-listed stocks behind UBS AG, sold a majority stake in Direct Edge to hedge fund Citadel Investment Group LLC and Goldman Sachs Group Inc., recording a gain of $13 million before taxes last quarter. Third-quarter revenue at Direct Edge was $38 million, Knight Chief Financial Officer Steven Bisgay said in a conference call with shareholders Oct. 17. Direct Edge handled a daily average of 546 shares over the past two weeks, a seven-fold increase from the average for the fourth quarter of 2006. In addition to cutting fees at least twice this year, Direct Edge has lured business by matching trades on one of its two systems at no cost. --Editor: Zehren. To contact the reporter on this story: Edgar Ortega in New York at +1-212-617-2592 or ebarrales@bloomberg.net. To contact the editor responsible for this story: Otis Bilodeau at +1-212-617-3921 or obilodeau@bloomberg.net. [TAGINFO] GS US CN NITE US CN 578298Z US CN 811286Z US CN NI NYSE NI EXC NI NASDAQ NI ELT NI US NI FIN NI SCR NI WIN NI MO NI NJ NI AMEX #<228737.532655.1.0.53.12385.96># #<297127.3815276.1.0.60.17559.25># -0- Oct/30/2007 13:47 GMT