Maker-Taker Pilot Program Eyed
So what should be included in a pilot program designed to evaluate the effects of the current maker-taker or rebate pricing system used in the equities markets?
James Angel, associate professor at the McDonough School of Business at Georgetown University, offered his views on the controversial pricing system ahead of next week’s U.S. Securities and Exchange Commission’s Equity Market Structure Advisory Committee meeting where it is almost certain a pilot program to study the effects of maker-taker will be announced.
“I’ve long been a critic of maker-taker, because I think it distorts the market. A pricing system in which 93% of the price (28/30 mils) is rebated is absurd,” Angel told Markets Media in a telephone interview. ” It shows that the SEC-mandated price cap is way too high.”
He added that generally price controls are found in places when there is such a big market imperfection that governments have to step in, such as rate-making for monopoly utilities.
“The fact that the SEC found it necessary to cap the take fees demonstrates that there is a big market imperfection in the current setup. Instead of arguing over the size of the take fee, we should be considering what it is in the current SEC market structure that requires the SEC to be in the rate-making business in the first place.”
Angel advocated caution in setting up any type of pilot program designed to evaluate maker-taker, with the SEC evaluating all data before proposing anything. Acknowledging that the current market pricing system of choice (maker-taker) is flawed, he added that the current market structure is high-quality.
Bearing that in mind, Angel said that a good pilot program would identify several groups of treatment stocks with matching controls. For example the treatment groups would permit rebates but would have take fee limits of 15, 5, and 0 mils, or the exchange operators could charge only one side or both sides of the trade.
“We probably need about 100 stocks or so in each treatment group to get a worthwhile sample,” he said. “The matching controls would be closely matched to the treatment groups based. And there should be separate treatment groups for ADRs and ETFs because of the differences in their liquidity patterns.”
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