A Model of Maker-Taker Fees and Quasi-Natural Experimental Evidence

In recognition of the design of Rule 611 of RegNMS that precludes fee washout, we introduce endogenous information acquisition into an asymmetric information model of the limit order book with access fees and continuous pricing. Informed traders optimally adjust the likelihood of an informed trade to match fee structures which by legal fiat cannot washout despite claims to the contrary. We test this implication using NASDAQ’s ‘quasi-natural’ 1.9 trillion-dollar experiment with a unilateral maker-taker fee/rebate reduction. We show that the cum take-fee spread narrows due to a deterioration in informational content resulting in welfare loss and worsening of platform price efficiency.