Trading Fees and Intermarket Competition

Panayides, Marios A.; Rindi, Barbara; Werner, Ingrid M.

doi:10.2139/ssrn.2910438

Cited by 4 publications

(1 citation statement)

References 34 publications

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“…Recent theories investigating the effect of maker-taker pricing on market quality show that if prices are continuous, only the net fees are relevant (Colliard and Foucault, 2012), whereas in the presence of discrete prices the fee breakdown affects agents' order submission behavior (Foucault et al, 2013). Panayides et al (2017) extend this insight to fragmented markets and show that maker-taker fees lead to a migration of limit and market orders across venues. Chao et al (2018) show that, in the presence of a fixed tick size, exchanges use such alternative fee structures to attract traders to their market by offering a finer (implicit) pricing grid.…”

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confidence: 82%

A Tale of One Exchange and Two Order Books: Effects of Fragmentation in the Absence of Competition

et al. 2018

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Exchanges nowadays routinely operate multiple, almost identically structured limit order markets for the same security. We study the effects of such fragmentation on market performance using a dynamic model where agents trade strategically across two identically-organized limit order books. We show that fragmented markets, in equilibrium, offer higher welfare to intermediaries at the expense of investors with intrinsic trading motives, and lower liquidity than consolidated markets. Consistent with our theory, we document improvements in liquidity and lower profits for liquidity providers when Euronext, in 2009, consolidated its order flow for stocks traded across two country-specific and identically-organized order books into a single order book. Our results suggest that competition in market design, not fragmentation, drives previously documented improvements in market quality when new trading venues emerge; in the absence of such competition, market fragmentation is harmful.

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confidence: 82%

A Tale of One Exchange and Two Order Books: Effects of Fragmentation in the Absence of Competition

et al. 2018

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Transaction fees: Impact on institutional order types, commissions, and execution quality

O'Donoghue¹

2022

Journal of Financial Markets

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Optimal Trade Execution in Cryptocurrency Markets

Bundi

Wei²,

Khashanah

2023

Preprint

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Novel technologies allow cryptocurrency exchanges to offer innovative services that set them apart from other exchanges. In this paper we study the distinct features of cryptocurrency fee schedules and the implications for optimal trade execution. We formulate an optimal execution strategy that minimizes the trading fees charged by the exchange. We further provide a proof for the existence of an optimal execution strategy for this type of fee schedule. In fact, the optimal strategy involves both market and limit orders on various price levels. The optimal order distribution scheme depends on the market conditions expressed in terms of the distribution of limit order execution probabilities and the exchange's specific configuration of the fee schedule. Our results indicate that a strategy kernel with an exponentially decaying allocation of trade volume to price levels further away from the best price provides a superior performance and potential reduction of trade execution cost of more than 60%. The robustness of these results is confirmed in an empirical study. To our knowledge this is the first study of optimal trade execution that takes into consideration the full fee schedule of exchanges in general.

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Trading Fees and Intermarket Competition

Cited by 4 publications

References 34 publications

A Tale of One Exchange and Two Order Books: Effects of Fragmentation in the Absence of Competition

A Tale of One Exchange and Two Order Books: Effects of Fragmentation in the Absence of Competition

Transaction fees: Impact on institutional order types, commissions, and execution quality

Optimal Trade Execution in Cryptocurrency Markets

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