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SUMMARY:Two-Sided Markets\, Make-Take Fees and Competition between Stock E
 xchanges
DTSTART:20150109T103000
DTEND:20150109T120000
DTSTAMP:20260919T215413Z
UID:8eac410dad6d24f9d77980db887faf2320f8a6bb241c26ca4ec69242
CATEGORIES:Conferences - Seminars
DESCRIPTION:Mao YE (University of Illinois)\nThis paper examines competiti
 on between stock exchanges for order flow by setting make fees for limit o
 rders and take fees for market orders. We find that exchanges can use make
 -take fees  to create sub-tick prices and facilitate trades that are bloc
 ked by the tick size regulation. The discrete tick size generates two-side
 d markets in which the charge on each side matters even for the same total
  charge. Our two-sided market model explains several anomalies relative to
  a standard one-sided market. First\, the breakdown of make-take fees is n
 ot neutral for social welfare\, and the equilibrium fee structure always i
 nvolves one side being subsidized and the other side being charged. Second
 \, the price competition of two identical exchanges does not lead to Bertr
 and outcome\, but to mixed strategy equilibrium with positive profits. Thi
 s justifies the diversity of fee structures and their frequent adjustments
 \, as well as the entry of exchanges with  new fee structures. Third\, th
 e model predicts that liquidity makers prefer being charged (subsidized) w
 hen the tick size is large (small)\, and the market becomes more fragmente
 d under a larger tick size. We find empirical evidence consistent with the
 se two predictions using reverse splits of ETFs as exogenous shocks to the
  relative tick size\, with paired ETFs that track the same index but do no
 t reverse split as controls.
LOCATION:UNIL\, Extranef\, room 126 https://planete.unil.ch/plan/?local=EX
 T-126
STATUS:CONFIRMED
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