Cuts implemented last summer to the trading fees charged, and rebates paid, under the Toronto Stock Exchange’s “maker-taker” fee model have not had any discernible negative impact on market quality, a new report from TSX Equities finds.
On Tuesday, TSX Equities published a report analyzing the impact of those changes in the first three months following the fee cuts. “In general, our review efforts to this point have not provided any clear indications of negative impact to market quality related to the fee reductions,” the TSX report concludes.
See: TMX announces new equity trading fee program
During the three-month period, “there were significant macro events that likely contributed to increased market-wide volatility and higher trading volumes,” the report says. Additionally, it notes that there has been a significant change to Canadian market structure since then, and it takes time for markets to adjust to these sorts of developments. As a result, TSX Equities is reluctant to draw any conclusions from the initial data.
Instead, the report highlights several observations based on the first three months following the fee change. For example, the review found: a widening in spreads; no definitive trend in trade sizes; exchange-traded funds (ETFs) were not generally impacted by the fee change; and intraday volatility remained consistent.
The fee changes appear to have impacted market share, the report says, with lower-fee markets losing share. Given these effects, the report suggests that, “… in the absence of a market-wide reduction in rates imposed by regulation, any marketplace seeking to reduce make-take rates may be more inclined to make gradual phased reductions to minimize the risk to trading activity on its marketplace.”
TSX Equities intends to continue monitoring for market impact from the fee changes, and its research will inform its plans for further fee cuts, the report says. “The extent and timing of further reductions and subsequent reports will be based on continued analysis, monitoring and customer feedback,” says the report.
When the fee changes were first announced, TSX Equities estimated that fees would be cut by 26%, and passive rebates reduced by 31%, across all markets. The changes came in response to increasing concerns about the impact of these fee models on market structure, trading costs, and fairness. These sorts of fees have been criticized for distorting the markets, making trading too costly, fostering fragmentation and needless intermediation, and creating conflicts of interest.
The Canadian Securities Administrators (CSA) have also pledged to study the elimination of the maker-taker model.