The impact of make-take fees on market efficiency
Abstract
Stock exchanges structure their trading fees to subsidize liquidity by offering “make” rebates for providing liquidity through limit orders and charging “take” fees for consuming liquidity via marketable orders, leading to debate regarding the impact of these fees on market quality. Using an experiment performed by NASDAQ, I employ difference-in-differences analysis and find that a decrease in take fee and make rebate levels on one exchange leads to greater absolute pricing error and larger variance of mispricing for the market as a whole, beyond that expected from widened bid-ask spreads. This occurs because bid-ask spreads widen and fewer informative trades are executed.
Publication Title
Review of Quantitative Finance and Accounting
Recommended Citation
Black, J. (2022). The impact of make-take fees on market efficiency. Review of Quantitative Finance and Accounting, 58 (3), 1015-1035. https://doi.org/10.1007/s11156-021-01016-w
