Maker-Taker Arithmetic

Question

A 50 stock quotes 50.00 / 50.01, a one-cent spread. The venue pays resting (maker) orders a rebate of 0.2 cents per share and charges aggressive (taker) orders 0.3 cents per share. (a) You buy at the bid and later sell at the offer, both passively: what is your round-trip capture per share, in cents, including rebates? (b) What does one spread-crossing trade effectively cost a taker per share?

Accepted Answer

(a) Maker round trip: spread capture of 1.0 cent plus two maker rebates of 0.2: 1.0 + 2 times 0.2 = mathbf1.4 text cents/share approx 2.8 text bps of a 50 stock. The rebates are 0.4/1.4 approx 29% of total capture, not a rounding error. For high-volume passive strategies in tick-constrained names, the rebate is a large share of the margin, sometimes effectively all of it after adverse selection. (b) Taker cost: versus the 50.005 mid, crossing pays the half-spread (0.5 cents) plus the 0.3-cent fee = 0.8 cents/share (1.6 bps) each way. Why this matters beyond arithmetic: quoted spreads misstate true economics, the cum-fee spread is wider for takers and richer for makers than the screen shows. Fee schedules therefore steer routing: brokers and SORs rank venues by cum-fee price, and "inverted" venues (which pay takers and charge makers) attract makers who would rather pay for priority of execution than wait in a long queue. Because US ticks floor the quoted spread at one cent for most stocks, fees function as sub-penny price adjustments, competition continues below the tick, in the fee schedule. Traps: computing P&L gross of fees (here a 40% understatement of maker capture); comparing

Maker-Taker Arithmetic

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