08.21.2017
Xavier Rolet, chief executive of the London Stock Exchange Group, entered into a Twitter debate on exchange rebates following news that Massachusetts is reviewing whether they are in the best interest of investors.
Last week Massachusetts’ securities regulator announced an inquiry into whether retail brokerages are routing orders to stock exchanges in return for payments instead of best execution. William Galvin, the secretary of the Commonwealth of Massachusetts, said in a statement: “If financial rebates or kickbacks create a conflict that results in less than the best deal for the investors, this practice must stop.”
Rolet responded to the announcement of the probe:
maker-taker tarriff is a breach of an Exchange's bond of neutrality with its customers: ignoring media hostility @LSEplc repealed it in 2009 https://t.co/7NvnuyFBeN
— Xavier R. Rolet (@xrolet) August 18, 2017
A “maker-taker” model involves an exchange charging clients who take liquidity, but offers payments – or rebates – to brokers who make prices and facilitate liquidity. He clarified that Turquoise, the multi-lateral trading facility owned by the London Stock Exchange, uses a maker-taker model as it is not a regulated exchange.
Jim Greco, founder of alternative trading system Direct Match, replied and exchanged a series of tweets with Rolet:
We should evidently ban marketing and sales too https://t.co/XkOP37V8XK
— Jim Greco (@jgreco) August 18, 2017
All flows are equal, diversity is what matters. Transfer by Exchange of fee income from 1 type of client to another is a form of corruption https://t.co/a6RUnbEaYQ
— Xavier R. Rolet (@xrolet) August 20, 2017
.. calling rebates “corruption” is harmful to the discourse and breeds distrust in the markets.
— Jim Greco (@jgreco) August 20, 2017
#MiFID & #RegATS created competing platforms offering wide range of complex rebates: not an Exchange's business to decide for its customers https://t.co/bW7WpaXQoW
— Xavier R. Rolet (@xrolet) August 20, 2017
What’s stealthy about rebates? Exchanges must publicize their schedule ahead of time.
— Jim Greco (@jgreco) August 20, 2017
Retail investors know about it?Truly?Exchanges shouldn't impose such transfers Why not trade #MTF if u require income transfer from others ? https://t.co/aG5lVhZJgs
— Xavier R. Rolet (@xrolet) August 20, 2017
And there is a already a set of regulations to ensure that broker-dealers are acting in their customers best interests in the transactions.
— Jim Greco (@jgreco) August 20, 2017
My very point, thanks. Part of the fee they pay their broker subsidizes other traders. I doubt they'd approve if they knew. https://t.co/41B5N5QabS
— Xavier R. Rolet (@xrolet) August 20, 2017
Same applies to Institutional Investors, not direct Exchange members. Most of them know of the transfer, though I dbt if they approve… https://t.co/qFeo1iz6se
— Xavier R. Rolet (@xrolet) August 20, 2017
Retail investors have the lowest exec. costs ever. If you want to make the case about rebates then best to focus on institutional trading.
— Jim Greco (@jgreco) August 20, 2017
Nonsense I'm afraid. In Europe retail trading represents bet 10% and 30% of total Exchange flows ! https://t.co/6H5OqXzQRj
— Xavier R. Rolet (@xrolet) August 20, 2017
Percentage far less in U.S. But again, one agree with your characterization as an income transfer. Liquidity provision is a service.
— Jim Greco (@jgreco) August 20, 2017
There are two ways to get paid for it: bid/offer spread and rebates. Just removing rebates means spread increases. Ban not saving anything.
— Jim Greco (@jgreco) August 20, 2017
* one = I don’t.
— Jim Greco (@jgreco) August 20, 2017
With respect again, this doesn't make much sense #MTFs & #ATSs would immediately bridge the gap being electronically connected to Exchanges! https://t.co/cNKg2jA6OW
— Xavier R. Rolet (@xrolet) August 20, 2017
Liquidity is as much a need as a service. We disagree about a Natl Exchange's right to enforce value transfer in favor of a type of trading https://t.co/6BGnM4L9cK
— Xavier R. Rolet (@xrolet) August 20, 2017
The debate ended cordially:
We might have reached the limits of twitter back and forth, but would love to grab a beer next time you are in NYC and talk market structure
— Jim Greco (@jgreco) August 20, 2017
Happy to. My treat! https://t.co/IGSox2tCOX
— Xavier R. Rolet (@xrolet) August 20, 2017
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