medium · Market Microstructure spread-econ
A venue lowers its taker fee, narrowing the QUOTED spread (the cum-fee spread tightens because makers can post tighter and still profit). A buy-side desk paying the taker fee compares the pre- and post-change CUM-FEE effective spread (the all-in cost including the access fee) and finds it essentially unchanged, even though the quoted spread visibly tightened.
What is the cleanest explanation consistent with rational maker behavior?
- Makers tighten the displayed quote by roughly the fee reduction, so the quoted spread falls but the all-in (fee-inclusive) cost to the taker is approximately conserved
- Because the taker fee reduction lowers all-in trading costs one-for-one, an unchanged cum-fee effective spread can only mean the desk mismeasured the original quoted spread
- Narrower quoted spreads mechanically reduce cum-fee effective spreads, so the desk is likely capturing extra midpoint price improvement that offsets the lower fee
- Quoted and effective spreads are defined independently of any exchange access fee, so the fee cut cannot affect either one and the observation is purely coincidental
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