Trading Fees and Intermarket Competition

We model an order book with liquidity rebates (make fees) and trading fees (take fees) that faces intermarket competition, and use the models insights to explain changes in market quality and market shares following changes in make-take fees. As predicted by our model, we document that fee changes by one venue affect market quality and market shares for all venues that compete for order flow. Furthermore, we document cross-sectional differences in changes in market quality and market shares following a simultaneous decrease in both make and take fees consistent with traders in large (small) capitalization stocks being more sensitive to the change in make (take) fees.

Keywords: Trading Fees, Maker-Taker Pricing, Intermarket Competition, Limit Order Book

JEL Classification: G10, G12, G14, G18, G20, D40, D47

Suggested Citation: Suggested Citation

Panayides, Marios A. and Panayides, Marios A. and Rindi, Barbara and Werner, Ingrid M., Trading Fees and Intermarket Competition (January 31, 2017). BAFFI CAREFIN Centre Research Paper No. 2017-51, Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=2954512 or http://dx.doi.org/10.2139/ssrn.2954512