Review of Financial Studies Vol. 32 No. 3 2019
Why Discrete Price Fragments U.S. Stock Exchanges and Disperses Their Fee Structures
Abstract
Stock exchange operators compete for order flow by setting “make” fees for limit orders and “take” fees for market orders. When traders can quote continuous prices, exchange operators compete on total fee, because traders can choose prices that perfectly neutralize any fee division. The 1-cent minimum tick size, however, prevents traders from neutralizing fee division. The nonneutrality of division between make and take fees (1) allows an exchange operator to establish exchanges that differ in fee structure to engage in second-degree price discrimination and (2) destroys the Bertrand equilibrium, leads to frequent fee changes, and encourages entries of new exchanges. Received May 29, 2016; editorial decision April 19, 2018 by Editor Robin Greenwood.
- DOI
- 10.1093/rfs/hhy073
- Volume
- 32
- Issue
- 3
- Pages
- 1068-1101
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref