The maker/taker pricing model in options markets that has gone in and out of fashion is apparently back in. That trend is paying off in volume for Nasdaq-OMX-PHLX. Nasdaq-OMX-PHLX expanded its maker/taker structure in February, and the International Securities Exchange (ISE) responded on March 29, introducing a modified maker/taker fee schedule for options on the PowerShares QQQ ETF, Citigroup and Bank of America. ISE market makers that meet minimum quoting requirements will now receive a $0.10 maker rebate for posting liquidity in these names.
Maker/taker pricing gives liquidity providers rebates and charges customers who remove liquidity from the exchange.
“This is a big move [because] it indicates that payment for order flow is becoming less and less important in the most liquid names and the need to have liquidity is becoming so important that the exchanges are willing to pay for it. It winds up with most of the exchanges moving toward fee parity in a fashion similar to what we have on the stock market,” says Jud Pyle, chief investment strategist for ONN TV. “Now, if you’re making a market on ISE or making a market on ARCA or PHLX, you’re concerned less because you’re going to get paid in either place. You can be less concerned about which exchange your liquidity is placed on.”
CBOE does not currently use a maker/taker model, but it is expected to roll out a new options exchange that may include different pricing mechanisms.
While Pyle says he has no inside information, he expects ISE to expand its new maker/taker fee structure to include more names to keep up with Nasdaq-OMX-PHLX. “This is a continuing saga, and CBOE will [likely] follow suit, although it will not happen overnight,” he says.