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Trading Fees and Intermarket Competition

Author

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  • Marios Panayides
  • Barbara Rindi
  • Ingrid M.Werner

Abstract

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 a 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.

Suggested Citation

  • Marios Panayides & Barbara Rindi & Ingrid M.Werner, 2017. "Trading Fees and Intermarket Competition," BAFFI CAREFIN Working Papers 1751, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp1751
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    References listed on IDEAS

    as
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    Cited by:

    1. Bernales, Alejandro & Garrido, Nicolás & Sagade, Satchit & Valenzuela, Marcela & Westheide, Christian, 2020. "Trader Competition in Fragmented Markets: Liquidity Supply versus Picking-off Risk," SAFE Working Paper Series 234, Leibniz Institute for Financial Research SAFE, revised 2020.
    2. Sarah Draus, 2012. "Market Power on Exchanges: Linking Price Impact to Trading Fees," CSEF Working Papers 490, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Roberto Riccó & Barbara Rindi & Duane J. Seppi, 2021. "Optimal Market Asset Pricing," Working Papers 675, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Ingrid M. Werner & Barbara Rindi & Sabrina Buti & Yuanji Wen, 2023. "Tick Size, Trading Strategies, and Market Quality," Management Science, INFORMS, vol. 69(7), pages 3818-3837, July.

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    More about this item

    Keywords

    Trading Fees; Maker-Taker Pricing; Intermarket Competition; Limit Order Book;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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