An exchange pays makers a rebate of 0.20 cents per share and charges takers 0.30 cents per share, and the quoted spread is 1 cent. What does a maker earn per share on a round trip that buys on the bid and sells on the offer, and where does that edge go in equilibrium?

An exchange pays makers a rebate of 0.20 cents per share and charges takers 0.30 cents per share, and the quoted spread is 1 cent. What does a maker earn per share on a round trip that buys on the bid and sells on the offer, and where does that edge go in equilibrium?

Approach: Add the spread captured or paid to the fee on each of the two legs, keeping the sign of each fee, then ask what free entry does to the resulting edge.

1.4 cents. On the round trip the maker captures the full 1 cent quoted spread and collects the rebate on both legs, 1 + 0.20 + 0.20 = 1.4 cents. The taker crossing both ways pays the 1 cent spread plus 0.30 cents of fee on each leg, so -1 - 0.30 - 0.30 = -1.6 cents, and the 3 cent gap between the two roles is the whole economics of maker-taker fees. In equilibrium the maker does not keep the 1.4 cents: entrants add size at the touch until the expected edge net of adverse selection is zero, so the rebate mostly ends up as a longer queue rather than as maker profit, and the effective spread a taker pays is the quoted 1 cent plus 0.6 cents of fees.

Follow-up: What does the same round trip earn on an inverted venue that charges makers 0.10 cents and rebates takers 0.05 cents?

Key concepts: maker-taker fees, rebate, round trip, quoted spread.