Considering Maker/Taker

HFT Strategies Across Markets With Single and Several Data Feeds

The Issue:

Maker-taker is a pricing scheme applied by exchanges or trading platforms. It gives a rebate to market makers providing liquidity (those offering to sell stock) and charges a transaction fee to customers who take liquidity (those looking to buy stock). Some believe the rebate system creates a conflict for brokers who may send order flow to a venue to secure the rebate and it should be abolished. SEC Chairman Mary Jo White, in a June 2014 speech, while not calling for abolition, said “when fees and payments (like maker-taker) are not passed through from brokers to customers, they can create conflicts of interest and raise serious questions about whether such conflicts can be effectively managed.”

MMI’s Stance:

Contrary to the widespread misconception that high frequency trading firms (HFTs) or Principal Trading Firms (PTFs) are reliant upon such rebates, MMI has stated publically that the abolition of the rebates is not a concern. Our Member firms trade on venues without maker-taker. And while eliminating them might mean a little less direct revenue for the firms, the incentives maker-taker provide to traders would probably find their way back into spreads and ultimately be borne by all investors. Which we assume is not the intention of regulators.

Further Resources:

June 5, 2014: Enhancing Our Equity Market Structure
Speech by SEC Chairman Mary Jo White in which she considers the possible conflicts created by maker-taker pricing.

August 24, 2015: Fly on the Wall
MMI blog post describing a meeting between Member firms and the staff of a prominent national opinion leader to dispel common misconceptions, including the effect of maker-taker on HFT operations.

March 20, 2015: Market Structure Reforms: Banning Maker-Taker Won’t Eliminate Broker Conflicts
TabbFORUM Op-Ed by David Mechner of Pragma says “capping maker-taker will not eliminate broker conflict around order handling. A coherent set of market structure reforms that properly addresses the interests of investors and the buy side is needed.”

April 15, 2014: Payment for Order Flow and Trade-At Rule Crucial to Maker-Taker Discussion
MMI blog post which reports that high frequency trading is often linked to maker-taker because many high frequency trading strategies rest their orders and at many exchanges it is the resting orders that receive the rebate. However, it is important to know that HFT strategies do not rely on the rebate to be profitable.

February 21, 2014: Trading Rebates Skew Markets, NYSE and Allies Tell SEC
Bloomberg News article in which “critics of maker-taker say it creates a conflict of interest for brokers because it encourages them to send orders to maximize rebates instead of serving clients.”

“Due to the rise of high-frequency trading, investors both large and small enjoy a deeper pool of potential buyers and sellers, and a wider variety of ways to execute trades…investors now enjoy faster, more reliable execution technology and lower execution fees than ever before."

Arthur Levitt, former SEC Chairman

The Wall Street Journal, August 17, 2009

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