July 28, 2014 / 6:50 PM / 6 years ago

Nasdaq CEO says maker-taker model has value, but fees too high

WASHINGTON, July 28 (Reuters) - Nasdaq OMX’s chief urged U.S. regulators on Monday to re-examine the pricing model that stock exchanges use to attract trading, joining the debate about a fee-based incentive for traders that has come under scrutiny in recent months.

Robert Greifeld called for a re-evaluation of the “maker-taker” model, in which exchanges pay rebates to traders who bring liquidity to the market and charge fees to those who take it away.

The rebates apply to so-called “access fees,” which exchanges charge brokers and are capped by federal regulations at 30 cents per hundred shares.

“The maker fee is an incentive ... for people to provide liquidity into the market,” Greifeld told reporters on the sidelines of a day-long roundtable held by U.S. New Jersey Republican Representative Scott Garrett to explore potential equity market reforms.

“To be rewarded for that in some way I think is fair and legitimate.”

But the line should be drawn, he noted, when the incentive is so large that “you are just trading for the incentive.”

He added that the 30 cent fee “was not designed by God” and is already 10 years old.

The maker-taker model is just one of several issues that have come under renewed scrutiny in recent months, after bestselling author Michael Lewis questioned the practice of paying brokers as an incentive to entice liquidity.

In addition to the maker-taker model used by most of the large exchanges, major market-maker brokerages such as KCG Holdings and Citadel also pay retail brokerages to send order flow to their platforms.

Critics say the practice of paying for order flow poses conflicts of interest, because brokers may be enticed to send orders to where they get paid the highest, instead of acting in their clients’ best interest.

IEX, the upstart trading venue featured in Lewis’ book, is one such critic, and does not pay for order flow.

Greifeld’s comments Monday differ from the views of his exchange’s biggest two biggest rivals - the Intercontinental Exchange’s New York Stock Exchange and BATS Global Markets.

ICE CEO Jeffrey Sprecher has advocated lowering access fees. But he wants to take things a step further and ban maker-taker pricing altogether.

BATS CEO Joseph Ratterman, however, disagrees with both, and said that access fees should be tailored to each company.

“I would say 30 cents is as good a level as any. We should maybe consider ... looking across all the stocks for a one-size doesn’t fit all solution,” Ratterman said on Monday.

Securities and Exchange Commission Chair Mary Jo White earlier this year announced she plans to unveil a series of proposals designed to strengthen the markets and improve transparency.

Although her staff is exploring a raft of new market reforms, she has not explicitly called for changes to access fees or the maker-taker model.

The idea of lowering access fees appears to be gaining momentum on Wall Street by all kinds of firms whose interests are not always aligned.

The Securities Industry and Financial Markets Association (SIFMA), for instance, recently called for lowering the fee from 30 cents to 5 cents. (Reporting by Sarah N. Lynch; Editing by Richard Chang)

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