A Model of Maker-Taker Fees and Quasi-Natural Experimental Evidence

46 Pages Posted: 6 Nov 2018 Last revised: 16 Feb 2021

See all articles by Yiping Lin

Yiping Lin

University of New South Wales; Capital Markets CRC Limited (CMCRC)

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Frederick H. deB. Harris

Wake Forest University; Capital Markets CRC Limited (CMCRC)

Date Written: February 8, 2021

Abstract

Contrary to conventional belief, who pays the tax in overlapping markets, or the exchange access fee in the case of multiple exchange venues, always matters. As the make rebate increases, pricing efficiency improves in the maker-taker venue at the expense of lowering investor surplus. But summed over both venue types, total investor surplus is increasing in the absolute magnitude of the make rebate in the maker-taker venue and the make fee in the inverted venue. Once arbitrage and endogenous information acquisition are introduced into a model of the limit order book, traders are driven to optimally adjust the likelihood of an informed trade to match fee structures. We test this implication using NASDAQ’s ‘quasi-natural’ 1.9 trillion-dollar experiment with a unilateral maker-taker fee/rebate reduction. We show that the cum take-fee spread narrows due to a deterioration in informational content resulting in investor surplus gain but worsening platform price efficiency.

Keywords: Maker-Taker Fee, Exchange Competition, Market Efficiency, RegNMS, Fee Pilot

JEL Classification: G12, G14

Suggested Citation

Lin, Yiping and Swan, Peter Lawrence and Harris, Frederick (Rick) H. deB., A Model of Maker-Taker Fees and Quasi-Natural Experimental Evidence (February 8, 2021). Available at SSRN: https://ssrn.com/abstract=3279712 or http://dx.doi.org/10.2139/ssrn.3279712

Yiping Lin

University of New South Wales ( email )

Sydney, NSW 2052
Australia

Capital Markets CRC Limited (CMCRC) ( email )

Level 2, 55 Harrington Street, The Rocks
Sydney, 2000
Australia

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Frederick (Rick) H. deB. Harris

Wake Forest University ( email )

2601 Wake Forest Road
Babcock Graduate School of Management
Winston-Salem, NC 27109
United States
336-758-5112 (Phone)

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
99
Abstract Views
768
rank
361,544
PlumX Metrics