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The effects of make and take fees in experimental markets

Published online by Cambridge University Press:  14 March 2025

Vincent Bourke ,
Mark DeSantis  and
David Porter
Vincent Bourke
Affiliation:
Orange, USA
Mark DeSantis
Affiliation:
Orange, USA
David Porter*
Affiliation:
Orange, USA
*
[email protected]
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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.

Keywords

Exchange fee structuresMarket qualityMarket design

JEL classification

C9: Design of Experiments G1: General Financial Markets G4: Behavioral Finance‡
Type
Original Paper
Information
Experimental Economics , Volume 22 , Issue 4 , December 2019 , pp. 815 - 833
Copyright
Copyright © 2018 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10683-018-9574-3) contains supplementary material, which is available to authorized users.

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