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- Title
To Pay or Be Paid? The Impact of Taker Fees and Order Flow Inducements on Trading Costs in U.S. Options Markets.
- Authors
Battalio, Robert; Shkilko, Andriy; Van Ness, Robert
- Abstract
Consistent with prior literature, we find that average relative effective spreads are higher for venues that pay for order flow (PFOF) than for venues utilizing the maker-taker (MT) model. This relation becomes more nuanced when liquidity fees are incorporated into liquidity cost measures. For the majority of options, PFOF venues offer lower average liquidity costs net of taker fees. Net liquidity costs for the high-priced options, however, are lower for MT venues. Overall, our results suggest that the inclusion of fees and rebates can rationalize the routing of most, but not all, marketable orders to PFOF venues.
- Publication
Journal of Financial & Quantitative Analysis, 2016, Vol 51, Issue 5, p1637
- ISSN
0022-1090
- Publication type
Academic Journal
- DOI
10.1017/S0022109016000582