Last week's pricing changes at the New York Stock Exchange have electronic traders looking to take their business elsewhere and a quick response by the Nasdaq Stock Market gives them the place to go, said traders. The NYSE introduced a 10% price increase Friday to 2.75 per 100 shares, and Nasdaq quickly countered by reducing its fees to 2.25 cents per 100 shares to route to the NYSE after hitting its book. Traders said Nasdaq will now be the cheapest place to go, and the NYSE will have to rethink its fresh change if they continue to lose market share.

"This is a real shot across New York's bow," said a bulge bracket trading exec. NYSE has a 58% market share in listed securities--which represents a 12% drop in the last two months and 22% below historical levels. "I think [NYSE's market share] will go to 50, and the NYSE has some thinking to do about the structure of the hybrid and its pricing model," said one trading executive.

The Nasdaq needs to undercut the NYSE on routing because fees for executing NYSE shares on its own book are far more expensive--27 cents per 100 shares. Nasdaq has about a 14% market share in NYSE-listed securities, so the only way it can build up order flow is with cheaper routing to the Big Board. The fees will be attractive to electronic trading firms, which got hit when NYSE eliminated the monthly fee cap of $750,000. The reduction could baloon monthly execution fees at the NYSE for some of the top brokerages.

To provide a consolation to traders for prices going up, the NYSE removed limit order fees and will instead pay specialists directly for their services. But several electronic traders said the consolation means little because they cancel limit orders within five minutes, thus bypassing the fees. "Most venues pay you for limit orders," said a trader. "Why would you pay a human being to hold a limit order when you can give it to a machine and be paid?"

Traders said Nasdaq's counter takes direct aim at the NYSE Arca, Big Board's electronic sister exchange. Arca has been gaining market share--while the floor has been losing it--since October, when it started offering aggressive rebates to post liquidity. Nasdaq will be offering aggressive rebates of 20-25 cents per 100 shares for those firms that post orders on its own platform. Arca now rebates 20 cents.