The Effect of Maker-Taker Pricing on Market Liquidity in Electronic Trading Systems – Empirical Evidence from European Equity Trading

Lutat, Marco

doi:10.2139/ssrn.1752843

Cited by 19 publications

(11 citation statements)

References 16 publications

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“…An interesting theory, suggested in [2] and developed in [6] is that make-take fees have actually no impact on trading costs in the sense that the cum fee bid-ask spread should not depend on the make-take fees policy. This result is consistent with the empirical findings in [20,22]. Nevertheless, it is clearly shown in these works that many important trading parameters such as depths, volumes or price impact do depend on the make-take fees structure, see also [14].…”

Section: Introductionsupporting

confidence: 90%

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Optimal Make-Take Fees for Market Making Regulation

et al. 2018

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We address the mechanism design problem of an exchange setting suitable maketake fees to attract liquidity on its platform. Using a principal-agent approach, we provide the optimal compensation scheme of a market maker in quasi-explicit form. This contract depends essentially on the market maker inventory trajectory and on the volatility of the asset. We also provide the optimal quotes that should be displayed by the market maker. The simplicity of our formulas allows us to analyze in details the effects of optimal contracting with an exchange, compared to a situation without contract. We show in particular that it improves liquidity and reduces trading costs for investors. We extend our study to an oligopoly of symmetric exchanges and we study the impact of such common agency policy on the system.

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Section: Introductionsupporting

confidence: 90%

“…The martingale property of M now follows from the boundedness of u as it can be verified from the expression (20). Finally, the bound |Q t,q s | ≤q induces directly the announced bounds on u, which in turn imply Condition (17) when (22) is satisfied because v = −u − ση k .…”

Section: The Hjb Equation For the Reduced Exchange Problemmentioning

confidence: 84%

Optimal Make-Take Fees for Market Making Regulation

et al. 2018

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“…Following various studies before (e.g. Lutat (2010)) and to further increase comparability between segments, we divide the sample into three equal sized sub-samples in order to compare similar priced and valued instruments with one another. This approach further allows for a distinct assignment of each individual effect to each price and liquidity segment.…”

Section: Methodsmentioning

confidence: 99%

Securities Transaction Tax and Market Quality – the Case of France

Gomber

Haferkorn

Zimmermann

2015

Euro Fin Management

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The French Securities Transaction Tax (STT) implementation on August 1 st , 2012, is considered a landmark development within securities markets regulation. However, until today the controversy about possible drawbacks and applicability has not reached a conclusion and consequences for market quality are yet to be thoroughly assessed. In this light a rigorous evaluation on the STT's effect on market quality is highly desirable and would provide guidance for academics, regulators and practitioners alike. On this basis, we provide evidence that trading activity declines by approximately 16% after the introduction of the STT. Even though the French proposal exempts liquidity providing activities, we find increased spread levels and a strong decline in top order book depth resulting in additional transaction costs for market participants beside the tax. Most alerting, as the STT affects trading on all French listing venues, we find this deterioration in market quality threatening inter-market information transmission by impairing price coordination among the European fragmented markets.

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“…In contrast to our work, they find that the breakdown of the total fee into maker rebates and taker fees has no effect on quoted spreads. It is our understanding, however, that in Lutat (2010) and Cardella, Hao, and Kalcheva (2012), changes in the maker-taker fees are accompanied by changes in the total fee. Unique to our paper is a focus on the breakdown of the total fee into the maker rebate and the taker fee, holding the total fee constant.…”

mentioning

confidence: 97%

“…Barclay, Kandel, and Marx (1998) empirically study the effect of changes in bid-ask spreads on volume and prices and find that higher transaction costs reduce trading volume. Lutat (2010) argues that the Swiss Stock Exchange's removal of a maker fee (without changing the taker fee) did not affect quoted spreads. Cardella, Hao, and Kalcheva (2012) study a number of maker-taker fee changes in the United States from 2008 to 2010.…”

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confidence: 99%

Subsidizing Liquidity: The Impact of Make/Take Fees on Market Quality

Malinova¹,

Park

2015

The Journal of Finance

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Facing increased competition, over the last decade many stock exchanges changed their trading fees to maker-taker pricing, an incentive scheme that rewards liquidity suppliers and charges liquidity demanders. Using a change in trading fees on the Toronto Stock Exchange, we study whether and why the breakdown of trading fees between liquidity demanders and suppliers matters. Posted quotes adjust after the change in the fee composition, but the transaction costs for liquidity demanders remain unaffected once fees are taken into account. Yet, as posted bid-ask spreads decline, traders, in particular retail, use aggressive orders more frequently, and adverse selection costs decrease. JEL Classification: G12, G14.

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The Effect of Maker-Taker Pricing on Market Liquidity in Electronic Trading Systems – Empirical Evidence from European Equity Trading

Cited by 19 publications

References 16 publications

Optimal Make-Take Fees for Market Making Regulation

Optimal Make-Take Fees for Market Making Regulation

Securities Transaction Tax and Market Quality – the Case of France

Subsidizing Liquidity: The Impact of Make/Take Fees on Market Quality

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