* ICE CEO says rebates create conflicts for brokers
* "Maker-taker" system has led to market fragmentation -CEO
* Most order types designed to facilitate rebates
By John McCrank
NEW YORK, Feb 12 Banning the practice of U.S.
equity exchanges paying brokers in return for order flow would
go a long way toward reducing the complexity and risks in the
market, the head of the new owner of the New York Stock Exchange
said on Wednesday.
Eliminating this type of payment for order flow would help
tackle an array of problems in the market including
fragmentation, the proliferation of order types and
high-frequency trading, Jeffrey Sprecher, chief executive of
IntercontinentalExchange Group Inc, said at a Credit
Suisse financial services forum.
"The pricing structure that has been created by exchanges,
including my exchange, has really had a corrosive impact on cash
trading in U.S. equities in particular," Sprecher said. ICE
closed its $11 billion acquisition of NYSE Euronext in November.
The most prevalent type of pricing structure in the U.S.
equity markets is called "maker-taker," in which a firm that
makes liquidity by posting resting orders, receives a rebate,
often around 30 cents per 100 shares. The taker, who is buying
the shares, pays a fee, offsetting cost of the rebates.
Sprecher said the maker-taker system puts brokers in an
awkward position, as they have to shop for rebates in order to
compete, and that can get in the way of the brokers' obligation
of finding the best price for their end customers.
It has also made the markets more complex, as many exchange
operators have opened multiple exchanges and use a wide variety
of order types so that they can offer customized rebate
structures aimed at different segments of the market, he said.
If maker-taker were eliminated, NYSE, for instance, could
theoretically go from operating five different exchanges down to
just one, Sprecher said. He added that NYSE has as many as 80
different order types, most of which exist to make sure that
somebody gets the right rebate.
"We increasingly hear calls for a holistic review of the
U.S. equities markets, the fragmentation, the risk that's in it,
and the increased demand for high-speed networks in order to be
first to receive those rebates," Sprecher said.
"I think you could really simplify the market with just a
simple change of outlawing maker taker pricing and allowing us
to compete on technology and service and being low-cost
providers as exchanges."