ECN Fees

Discussion in 'Order Execution' started by bjb1963, Apr 30, 2003.

  1. bjb1963


    I am new to using ECN's for listed trading and have a question. I am being charged and extra .005 for INCA and .0045 for ARCA. Is this right? Seems off to me.
  2. EricP


    I'm not sure what you would mean by 'right', but the following is the deal that your broker dealer gets with ARCA:

    Add liquidity: Rebate of 0.2 cents per share (cps)
    Remove ARCA liquidity: Fee of 0.3 cps
    ARCA order routed outside ARCA for execution: Fee of 0.4 cps

    For INCA, I'm not sure if they've implemented the external routing engine yet. However, for all internally filled orders, the broker dealer fee schedule is as follows:

    Add liquidity: Rebate of 0.2 cps
    Remove liquidity: Fee of 0.3 cps

    For clarification of a few terms. Adding liquidity is when you post a non-marketable order onto the book of the ECN. This adds liquidity (adds an order to the ECN limit order book). Since ECN's want the best and most liquid limit order book to draw additional order flow and volume, they are willing to PAY clients who place and are executed on these orders that add liquidity.

    On the other hand, if there is an existing order on the ECN book to sell WXYZ at 20.10, and you are willing to buy at this price, then your order will be instantly filled against the existing order on the book. Your order has filled those shares, and thus, removed liquidity from the ECN book. As a result, this order will be charged for the execution.

    I hope this is clear. To answer your question of whether your ECN fee schedule is 'right'... Broker dealers are free to charge whatever ECN charges they wish. Some will go with a flat rate fee schedule, with no additional markups for ECN fees (IB, for example). Others, will offer very low commission rates and pump up income with higher ECN fees, etc.

    I prefer to stay with a firm that charges good commission rates, and simply passes forward all ECN fees/credits at cost (as shown above).

    Best of luck,

    P.S. => My answer above (and my experience) is for Nasdaq trading... I just noticed that your question specifically mentioned listed trading. The same overall concept applies, though. If I'm not mistaken, at least one ECN (ISLD), has set much lower rebates/fees for all listed orders in order to build more liquidity. In any case, your fees do seem 'high', at least in comparison to what your broker is paying to the ECN's.
  3. As to what is "right", check around and see what other brokers charge. If you don't like your fee, try to negotiate them. You'd be surprised what you can get when you tell them you are leaving.
  4. bjb1963


    Thanks for the responses. I guess what I meant by "right" was that if your rate is .005 then by using ARCA or INCA I am doubling my cost. Just seems a little expensive to me.
  5. lescor


  6. bjb1963


    Lescor, I did not see your reply.
    I just notice I miswrote my original question. For all ECN's I am actually paying an additional 1/2 penny. So if my rate is .008, if I use ARCA, ISLD, INCA, BRUT I am paying .013.
    If this is negotiable how much? What are the firms paying? Am I paying more to use these than everyone else? I see a lot of people use ECN's for listed trading now and I don't see why? I like the added convenience, but with all the complaining about commissions, this just seems like it is way too high.

    Note I only trade NYSE.

    Thanks in advance. Just a newbie.