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CBOE Stock Exchange Attracts Retail and Algo Order Flows with New Rebate Program

CBSX experiences 900 percent growth in volume with inverted "maker-taker" pricing program for 75 most active, low priced stocks.

At a time when some U.S. stock exchanges have lost volume, CBOE Stock Exchange (CBSX) ,launched a new pricing strategy in August for 24 of the most active, low-priced stocks that is garnering increased volume for the electronic exchange.

“We’re paying a lot for liquidity takers to come to our market. What we’re trying to do is attract retail order flow and algorithmic order flow,” explained David Harris, president and CEO of the CBSX, in an interview with Advanced Trading.

The “inverted” pricing strategy pays liquidity takers of liquidity a rebate of 14 cents per 100 shares, and charges liquidity makers a few of 18 cents per 100 shares.

CBSX, an electronic exchange launched in 2007, as a facility of the Chicago Board Options Exchange (CBOE), deployed the new pricing scheme on Aug. 16 for 24 of its most active and low priced stocks, including Citi and Bank of America. Volume for the initial 24 stocks increased 1,200 percent.

Then an additional 51 stocks were added on Sept. 1st to the inverted pricing strategy, and CBSX noticed an approximate 150 percent increase in their volume. Overall, volume for all 75 stocks has grown about 900 percent since the launch of the pricing strategy about a month ago.

Last week, in the interview, Harris said the CBSX was studying whether to expand the program to more stocks. Today, CBSX said it expanded the inverted ‘maker-taker’ pricing program to 50 additional stocks>/a>.

“There are really two things that are unique about the strategy,” said Harris. “For the first time an exchange on a stock-by-stock basis is taking a look at the value of liquidity provision and breaking out the fees, versus having one fee for tape A or Tape B,” said Harris. Secondly, exchanges typically pay the liquidity providers or “makers” a higher rebate and charge the “takers” a smaller fee. In this manner, the exchanges lose money on every rebate, said Harris. But in CBSX’s case, “our take rate is higher than our make-rate,” says Harris, so the spread is not a negative for CBSX, he added.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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