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It’s Not A Rebate!

Traders Magazine Online News, January 30, 2018

Joe Saluzzi and Sal Arnuk

There seems to be a discrepancy within the industry as to the difference between a “rebate” and a “discount”. A quick google search produces these definitions:

Rebate – a partial refund to someone who has paid too much money for tax, rent, or a utility.

Discount – a deduction from the usual cost of something, typically given for prompt or advance payment or to a special category of buyers.

Joe Saluzzi

In other words, rebates involve cash being sent back to someone while a discount is a reduction of a fee that is still charged.

Last week, IEX announced a new incentive program for market makers that are quoting in soon-to-be IEX listed stocks.  The word “incentive” seems to have worked up some well-known IEX critics and they immediately started saying that IEX, which has always been anti-rebate, would now be offering rebates.  But a closer look at the incentive program shows that what IEX is offering is a discount and not a rebate.  We were asked by the Financial Times our opinion of the new IEX pricing plan and responded:


Here is how their incentive program will work according to an IEX blog post :

The IEX Enhanced Market Maker (IEMM) Program offers a discount on trading fees to market makers when they meet stringent market making requirements in IEX-listed stocks with only their principal order flow (not that of their clients).

There are two tiers in our IEMM Program:

  1. Inside Tier?—?To qualify for the Inside Tier, firms must spend at least 20% of the trading day quoting at the National Best Bid and/or Offer for IEX-listed stocks. Said another way, the average of a firm’s time quoting at the NBB and NBO must be at least 20% per day.
  2. Depth Tier?—?To qualify for the Depth Tier, firms must quote within the greater of 1 MPV or 3 basis points of the NBBO at least 75% of the trading day. This tier is unique to the IEMM Program.

For more information on related topics, visit the following channels:

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