Courtesy of Peter Chapman
TRADERS Magazine interview with Nasdaq OMX EVP Eric Noll unveils a new tact in the ever-changing world of major exchange strategies to attract order flow.
In this case, NasdaqBx is up-ending the current industry “make-take” fee model whereby exchanges pay rebates to market-makers who improve prevailing bids/offers, and charge fees to those who ‘take’ liquidity [by 'hitting' existing bids or 'lifting' prevailing offers]. Instead of rewarding liquidity providers who traditionally tighten up prevailing screen quotes, NasdaqBx is proposing to reward liquidity takers and will pay rebates to those who act on existing bids and offers.
Here’s a partial excerpt from TRADERS Magazine interview with Noll:
>>On the need for the new Bx exchange
Customer orders are highly price sensitive and [the retail brokers] aggressively seek rebates to [offset] their shrinking payment-for-order-flow pools. So they’re looking to replace with other functionality and other sources of income that what they were getting directly in terms of payment for order flow. So they are aggressive rebate seekers.
>>On the new BX as a solution for the decline in payment for order flow
[Nasdaq Bx] gives us a chance to be the first options exchange to offer a model that pays takers of liquidity as opposed to makers of liquidity. Payment for order flow has become increasingly opaque. It has become increasingly difficult for earners of payment for order flow to know what they’re getting paid and how they’re getting paid. [Nasdaq Bx] is a model that actually makes their rebate for taking liquidity transparent, competitive and certain. And we think that has real value to them. So every other market model that operates out there operates primarily for the benefit of the provider of liquidity. This is going to be the first model out there that operates to the benefit of the taker of liquidity.
For the full interview, click here: