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To Pay or Be Paid? The Impact of Taker Fees and Order Flow Inducements on Trading Costs in U.S. Options Markets

  • Robert Battalio, Andriy Shkilko and Robert Van Ness


Consistent with prior literature, we find that average relative effective spreads are higher for venues that pay for order flow (PFOF) than for venues utilizing the maker-taker (MT) model. This relation becomes more nuanced when liquidity fees are incorporated into liquidity cost measures. For the majority of options, PFOF venues offer lower average liquidity costs net of taker fees. Net liquidity costs for the high-priced options, however, are lower for MT venues. Overall, our results suggest that the inclusion of fees and rebates can rationalize the routing of most, but not all, marketable orders to PFOF venues.


Corresponding author

* Battalio (corresponding author),, Mendoza College of Business, University of Notre Dame; Shkilko,, School of Business and Economics, Wilfrid Laurier University; and Van Ness,, School of Business, University of Mississippi.


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