LSEG’s Turquoise cuts rebates as maker-taker debate in the US rages on

Turquoise will remove its negative fee structure as of 1 November, as LSEG says buy-side support of transaction fee pilot in the US influenced the move.

The London Stock Exchange Group’s (LSEG) multilateral trading facility (MTF) Turquoise is set to cut rebates on its lit order book, while maker-taker pricing on exchanges in the US continues to be the subject of critical debate.

Turquoise said in its latest tariff schedule that as of 1 November the negative fee structure on its lit markets, with the exception of its lit auction system, will be removed and liquidity aggressive order fees will be halved to 0.15 bps.

The tariff change means Turquoise’s fees are now cheaper than its competitor Cboe Europe, which currently charges 0.17 bps for aggressive orders in its BXE and CXE order books. Turquoise will continue to run its Liquidity Provision Scheme, meaning a negative fee structure will still apply on a tiered basis for liquidity providers and proprietary trading firms.

Scott Bradley, head of sales and marketing for LSE cash markets and Turquoise, told The TRADE that the decision to remove rebates was not solely based on the debate around rebate structure and smart order routing in the US, but it was a contributing factor.

“We decided to be the first MTF to remove negative fees,” Bradley said. “Turquoise was built on partnerships and listening to our clients, with many of those being in support of the pilot in the US. Whilst obviously we are not beholden to those regulatory geographies, we are cognisant of the buy-side’s response to that pilot. Particularly the global buy-side firms which operate in multiple jurisdictions, because they tend to take a global approach to policy and procedures.”

In the US, controversy has raged around the subject of exchange rebates as many traders believe brokers route orders based on where they can get the highest rebate, rather than where they can get best execution. The US Securities and Exchange Commission (SEC) has made moves to enforce restrictions on pricing across stock exchanges for maker-taker pricing through the transaction fee pilot.

Major exchange operators such as Nasdaq and Cboe Global Markets have slammed the SEC’s proposed pilot, describing it as a “discredited vestige of intrusive, Depression-era legislation”. Asset managers, on the other hand, have been supportive of the idea, claiming that lowering access fees and rebates would reduce their distortive effect on order routing, price transparency and market quality.

“We are trying to create a more level playing field, ultimately with the aim of simplifying the tariff structure and trying to improve the overall quality of execution within the venue,” Bradley added.

“By generating the removal of negative fees or rebates, we feel it will enhance and promote a broader, deeper liquidity, which can only be a positive when the key criteria for the sell-side is best execution… In a world now with sophisticated smart order routing, the sell-side will naturally find best execution and so we are confident that this a step in the right direction for promoting that increase in quality.”

Anish Puaar, European market structure analyst at Rosenblatt Securities, told The TRADE that differences in market structure and best execution rules means rebates are the subject of debate far more in the US than in Europe.  

“Debate on maker-taker venue pricing has intensified in the US due to the transaction-fee pilot proposal. We haven’t yet seen the same scrutiny on maker-taker pricing in Europe due to differences in market structure,” Puaar said. “The US best-execution rules, which protect exchange quotations by prohibiting trades from taking place at inferior prices, give exchanges more of an incentive to compete on execution fees compared to Europe, where best execution is more subjective.”