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The impact of make-take fees on market efficiency

Jeffrey R. Black ()
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Jeffrey R. Black: University of Memphis

Review of Quantitative Finance and Accounting, 2022, vol. 58, issue 3, No 5, 1015-1035

Abstract: 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.

Keywords: Make-take fees; Market efficiency; Market quality; Trading (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11156-021-01016-w

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