Nasdaq has announced a pilot program to increase the amount of tape revenue to be shared with market participants that report trades to Nasdaq, and a new process to assess regulatory costs.

Currently, Nasdaq shares 80% of net Level 1 tape revenue after deducting regulatory costs. Beginning on June 3, Nasdaq will increase revenue sharing with Nasdaq market participants by eliminating the deduction of regulatory costs from Level 1 revenue and increasing the sharing percentage from 80% to 90% of gross revenue. Nasdaq estimates that these changes will increase tape revenue sharing to more than three times its current level.

At the same time, Nasdaq will directly assess a regulatory fee to market participants based upon the following formula: the total number of Nasdaq securities in which the firm posts a quote (20%); the number of quote updates in Nasdaq securities (40%); Automated Confirmation Transaction service records, with an adjustment to minimize the charge for firms that use ACT in unique ways (40%).

This fee is for market regulation services related to the trading of Nasdaq-listed securities only. Overall, the fee covers most of what it costs Nasdaq for NASD Regulation and Nasdaq MarketWatch to conduct regulation services.

“This new pricing package supports competition among exchanges and markets,” said Rick Ketchum, president of Nasdaq. “We believe that the level of revenue that Nasdaq will share with its members is equal to or better than that of any other exchange.

“At the same time, we’re dealing with the potential danger of competition degenerating into the lowest bidder regulating the marketplace. We’re solving that by creating an explicit charge for regulation, which clearly establishes that regulation is an important and necessary cost of running the market. We are proud of the quality of Nasdaq’s overall regulatory program. Where the cost was previously tied to measures that did not closely correlate to the regulatory services being performed, the new assessment approach will be more closely related to those activities,” Ketchum stated.