IDEAS home Printed from https://ideas.repec.org/a/kap/expeco/v22y2019i4d10.1007_s10683-018-9574-3.html
   My bibliography  Save this article

The effects of make and take fees in experimental markets

Author

Listed:
  • Vincent Bourke
  • Mark DeSantis
  • David Porter

Abstract

We conduct a series of experiments to examine the effects of the make and take fee structure currently used by equity exchanges in the U.S. We examine the effects of these fees on measures of market quality (efficiency, book depth, and the bid-ask spread). We find spreads to be smaller in the presence of make and take fees, and we note that this fee structure seems to induce buyers (moreso than sellers) to compete for rebates from the exchange leading to higher prices and lower profits. To test whether our results are due to the make and take fee structure or are artefacts of trading fees in general, we performed a second set of experiments in which traders on both sides of a transaction were assessed an identical fee. These identical trading fees do not appear to significantly affect our market quality measures.

Suggested Citation

  • Vincent Bourke & Mark DeSantis & David Porter, 2019. "The effects of make and take fees in experimental markets," Experimental Economics, Springer;Economic Science Association, vol. 22(4), pages 815-833, December.
    • Handle: RePEc:kap:expeco:v:22:y:2019:i:4:d:10.1007_s10683-018-9574-3
    DOI: 10.1007/s10683-018-9574-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10683-018-9574-3
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10683-018-9574-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Davis, Douglas D. & Holt, Charles a., 1993. "Experimental economics: Methods, problems and promise," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 8(2), pages 179-212.
    2. McCabe, Kevin A & Rassenti, Stephen J & Smith, Vernon L, 1992. "Designing Call Auction Institutions: Is Double Dutch the Best?," Economic Journal, Royal Economic Society, vol. 102(410), pages 9-23, January.
    3. Jean-Edouard Colliard & Thierry Foucault, 2012. "Trading Fees and Efficiency in Limit Order Markets," The Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3389-3421.
    4. repec:oup:rfinst:v:25:y::i:11:p:3389-3421 is not listed on IDEAS
    5. Jean-Edouard Colliard & Thierry Foucault, 2012. "Trading Fees and Efficiency in Limit Order Markets," Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3389-3421.
    6. Gjerstad, Steven & Dickhaut, John, 1998. "Price Formation in Double Auctions," Games and Economic Behavior, Elsevier, vol. 22(1), pages 1-29, January.
    7. Katya Malinova & Andreas Park, 2015. "Subsidizing Liquidity: The Impact of Make/Take Fees on Market Quality," Journal of Finance, American Finance Association, vol. 70(2), pages 509-536, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roberto Riccó & Barbara Rindi & Duane J. Seppi, 2021. "Optimal Market Asset Pricing," Working Papers 675, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Brauneis, Alexander & Mestel, Roland & Riordan, Ryan & Theissen, Erik, 2022. "The anatomy of a fee change — evidence from cryptocurrency markets," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 152-167.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Jeffrey R. Black, 2022. "The impact of make-take fees on market efficiency," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 1015-1035, April.
    3. Peter Gomber & Satchit Sagade & Erik Theissen & Moritz Christian Weber & Christian Westheide, 2017. "Competition Between Equity Markets: A Review Of The Consolidation Versus Fragmentation Debate," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 792-814, July.
    4. Clapham, Benjamin & Gomber, Peter & Lausen, Jens & Panz, Sven, 2021. "Liquidity provider incentives in fragmented securities markets," Journal of Empirical Finance, Elsevier, vol. 60(C), pages 16-38.
    5. Roberto Riccó & Barbara Rindi & Duane J. Seppi, 2021. "Optimal Market Asset Pricing," Working Papers 675, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Marios Panayides & Barbara Rindi & Ingrid M. Werner, 2017. "Trading Fees and Intermarket Competition," Working Papers 595, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Cimon, David A., 2021. "Broker routing decisions in limit order markets," Journal of Financial Markets, Elsevier, vol. 54(C).
    8. Clapham, Benjamin & Gomber, Peter & Lausen, Jens & Panz, Sven, 2018. "Liquidity provider incentives in fragmented securities markets," SAFE Working Paper Series 231, Leibniz Institute for Financial Research SAFE.
    9. Omar El Euch & Thibaut Mastrolia & Mathieu Rosenbaum & Nizar Touzi, 2019. "Optimal make-take fees for market making regulation," Working Papers hal-02379592, HAL.
    10. Bellia, Mario & Pelizzon, Loriana & Subrahmanyam, Marti G. & Yuferova, Darya, 2020. "Designated Market Makers: Competition and Incentives," SAFE Working Paper Series 247, Leibniz Institute for Financial Research SAFE, revised 2020.
    11. Degryse, Hans & Karagiannis, Nikolaos, 2019. "Priority Rules," CEPR Discussion Papers 14127, C.E.P.R. Discussion Papers.
    12. Brauneis, Alexander & Mestel, Roland & Riordan, Ryan & Theissen, Erik, 2022. "The anatomy of a fee change — evidence from cryptocurrency markets," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 152-167.
    13. Amber Anand & Jian Hua & Tim McCormick, 2016. "Make-Take Structure and Market Quality: Evidence from the U.S. Options Markets," Management Science, INFORMS, vol. 62(11), pages 3271-3290, November.
    14. O’Donoghue, Shawn M., 2022. "Transaction fees: Impact on institutional order types, commissions, and execution quality," Journal of Financial Markets, Elsevier, vol. 60(C).
    15. Michael Brolley, 2020. "Price Improvement and Execution Risk in Lit and Dark Markets," Management Science, INFORMS, vol. 66(2), pages 863-886, February.
    16. Wing Wah Tham & Elvira Sojli & Johannes A. Skjeltorp, 2018. "Cross-Sided Liquidity Externalities," Management Science, INFORMS, vol. 64(6), pages 2901-2929, June.
    17. Omar El Euch & Thibaut Mastrolia & Mathieu Rosenbaum & Nizar Touzi, 2018. "Optimal make-take fees for market making regulation," Papers 1805.02741, arXiv.org, revised Nov 2019.
    18. Alex Frino & Ognjen Kovačević & Vito Mollica & Robert I. Webb, 2020. "The sensitivity of trading to the cost of information," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(10), pages 1631-1644, October.
    19. Suchismita Mishra & Le Zhao, 2021. "Order Routing Decisions for a Fragmented Market: A Review," JRFM, MDPI, vol. 14(11), pages 1-32, November.
    20. Jose S. Penalva & Mikel Tapia, 2021. "Heterogeneity and Competition in Fragmented Markets: Fees Vs Speed," Applied Mathematical Finance, Taylor & Francis Journals, vol. 28(2), pages 143-177, March.

    More about this item

    Keywords

    Exchange fee structures; Market quality; Market design;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • G4 - Financial Economics - - Behavioral Finance
    • G1 - Financial Economics - - General Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:expeco:v:22:y:2019:i:4:d:10.1007_s10683-018-9574-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.