Competition and Exchange Data Fees

Abstract

Exchanges are monopolist suppliers of their own order book data. We examine three events where exchanges begin charging a fee for order book data for the first time. The introduction of data fees leads to an economically significant fall in that exchange's market volume. The fall is caused by having less time at the NBBO and less intermarket sweep orders routed to the treated exchange.
Consistently, Rule 606 data indicates a drop in limit and market orders routed to the treated exchange. The change in trader composition leads to a decrease in information on the treated exchange. The results are consistent with informed trader's order routing strategies being the most responsive to data fees.

Keywords: Data Fees, Exchange Competition

JEL Classification: G12, G14