Why Maker-Taker Venues Facilitate Price Discovery? Quasi-Natural Experimental Evidence

51 Pages Posted: 15 Jan 2022

See all articles by Yiping Lin

Yiping Lin

affiliation not provided to SSRN

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)

Abstract

The extant literature argues that the minimum tick is sufficient to prevent exchange access fee “washout” but cannot be reconciled with the association between fees and adverse selection.  We provide a new theory of  access fees in which they interact with the SEC’s NMS rules to provoke vast heterogeneity in fee structures across 300 differing venues. Fee structures are shown to raise utility in inverted venues relative to maker-taker venues while leaving aggregate trader utility unaltered. We test these implications with a unilateral maker-taker fee/rebate reduction using NASDAQ’s ‘quasi-natural’ 1.9 trillion-dollar experiment, finding support for our theory.

Keywords: Maker-Taker Fee, adverse selection, Price discovery, RegNMS, Fee Pilot

Suggested Citation

Lin, Yiping and Swan, Peter Lawrence and Harris, Frederick (Rick) H. deB., Why Maker-Taker Venues Facilitate Price Discovery? Quasi-Natural Experimental Evidence. Available at SSRN: https://ssrn.com/abstract=4009737 or http://dx.doi.org/10.2139/ssrn.4009737

Yiping Lin

affiliation not provided to SSRN ( email )

No Address Available

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

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