SEC Pilot Possible on Lessening Maker-Taker Model

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Rob Tricchinelli

Oct. 27 — Familiar battle lines were drawn Oct. 27, as members of an SEC advisory committee sparred over the maker-taker pricing model, under which exchanges give access fee rebates to market-makers and charge traders who “take” the liquidity.

A pilot program to curtail or eliminate the rebate model for certain equities “should be seriously considered,” SEC Chairman Mary Jo White said at a meeting of the agency's Equity Market Structure Advisory Committee.

Critics of the model say it creates a conflict of interest in order routing because customer orders might be sent to a particular exchange in order to maximize a rebate instead of getting the best price or execution.


Michael Buek, portfolio manager at Vanguard Group Inc., endorsed a pilot program under which a large number of stocks would trade without the maker-taker rebates.

Rebates are typically 30 cents per hundred shares traded, which is the largest amount legally permitted.

Doing away with those rebates might lessen the amount of orders sent to exchanges, Buek said in advocating for related limits for trading in dark pools or other private alternative trading systems.


Backers of the model say it provides appropriate incentive for market-makers to provide liquidity and helps reduce the spreads between bid and ask prices for equities.

“Spreads are likely to widen if you get rid of maker-taker,” Jamil Nazarali, head of execution services at Citadel Securities Inc., said. “Adding liquidity to the market is a public good.”

Nazarali said that traders rely on the model for price formation.


The model has drawn attention in some corners of Congress. Rep. Stephen Lynch (D-Mass.), who has said the program should be ended in its current form, introduced a bill in March to study the effects of eliminating the model in a pilot program.

The model creates “a system based on complex order routing and unfair advantages for certain participants on our exchanges,” Lynch warned.

Similar themes surfaced in a July 2014 hearing held by then-Sen. Carl Levin (D-Mich.), who also asked the SEC to end maker-taker.

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Phyllis Diamond at


Request Securities & Capital Markets on Bloomberg Law