Tuesday, September 18, 2007

New NYSE Fees

Simply put, these fees could be a "gamechanger."

Here is the press release detailing the new fees that go into effect on October 1st. They were brought to my attention by "Jawbreaker" via the comments section of this post.

Here's the thing I don't quite understand. If you route your order to the NYSE and "take liquidity" away from the market, you get hit with a .08 fee per 100 shares. I need a good explanation of what "taking liquidity" away means. If it means using a market order, I'm screwed.

There is a silver lining. The key is figuring out how to exploit it. If you "provide liquidity" via NYSE ARCA, you get a .25 rebate per 100 shares traded.

I need to know exactly what type of orders to place, (market or limit) and exactly where to route them (NYSE, ARCA, other ECNs) in order to avoid the "monster fee" and take advantage of the "petty rebate."

I trade from home. If anyone works for a place where they are discussing these fees and how we can avoid them/take advantage of them, please inform us all via the comments section.

Meanwhile, if we can't figure this stuff out, October will be a little bit like this:

14 comments:

Richard Todd said...

I don't keep up with this too closely, but I know from JC's old blog that they have had fees like this on some ECNs for a while now. And unfortunately, to the best of my understanding, "taking liquidity" is just as you suspect... grabbing available shares via market order.

At least it's not symmetric, so it appears someone can partially exit via limit order and break even on the liquidity fees.

Dinosaur Trader said...

Richard,

Thanks for your insight.

For me, this spells trouble. 80% of my trades are at the market... down from 100% in January, but still. These fees will eat me alive.

Guess I better figure this stuff out quickly or become a swing trader. Going in and out of the market with "market" orders is going to die a very quick death on October 1st.

-DT

Tyro said...

DT - why do you say that market orders will die a quick death? These fees will be lower than before and the rebates for providing liquidity are increasing. How could this possibly kill market orders? If anything, it gives more incentive for people to join the bid/offer so there will be less slippage for people like us who remove liquidity.

What do you see happening to impact your trading?

Tyro said...

I left a long comment earlier but it's not showing up. Got lost?

Anyway, using limit orders doesn't mean you're adding liquidity. To add liquidity you need to join the bid or the offer.

As well, note just how minuscule these fees really are. If your average profit is 0.01 or 0.02, then these fees will make a difference, but if you're trading for larger moves then you won't notice at all. As well, you need to be using a broker that passes the fees & credits along to you. Maybe your prop firm does this, but virtually all retail brokers will not.

Good luck, and the sky isn't falling yet :)

Dinosaur Trader said...

Tyro,

These fees are greater, not less. The whole idea about the NYSE charging for placing a market order is only 9 months old. I'm paying a little over $1000 a month in the fees currently.

The way I read it, they are raising the fee from .0275 to .08 if you place an order that "takes liquidity" away from the market. Now since I mostly place market orders, and this is roughly tripling the fee, I think I'll end up paying $3500 a month in fees now. That's why I'm saying market orders are dying... because I certainly won't be using them if I'm essentially starting each month -$3500 because of them.

Now, I guess I could be wrong about when I'll get charged the fee. That's what I'm trying to figure out... but if it's on every market order, I stand to lose $2500 a month because of this new fee.

So, unless I can improve my trading and somehow make $2500 more each month to offset the new fee, the sky is kind of falling on me... that is, unless I figure out how the rebate system works.

I just want to use market orders... if I can figure out how to use them without getting charged these damn fees, I'll be happy!

-DT

p.s. Meanwhile, not sure why your first comment was slow to appear. I don't moderate comments anymore.

Tyro said...

DT,

I'm sorry, I was looking at the Arca fees, not the NYSE. My mistake. Still, since Arca is already charging 0.30/100 shares and NYSE is only going up to 0.08/100, it just makes the argument stronger.


When you say you're paying $1,000/mo in fees, what does that include? Are you paying all of the exchange fees separately? What about the SEC fee? And how much does your firm charge? These other fees aren't changing so you certainly aren't going to be tripling your total fees, just increasing one small part of the total pie.

Take today for example. You traded 47,200 shares. That means that under the new fee system, your exchange fees will be ($0.08/100)*47,200 = $37.76, up from $12.98. Yes, it's a difference, but your math is funny if you imagine you're going to lose $2,500/mo.


Think of it this way: if you just make the spread with 100 shares, you've made $1, right? After that, the NYSE will take 0.08, so you'll go home with 0.92. Now you tell me what sort of trader will be hurt by this change? Only the spread traders, and you aren't one.

Dinosaur Trader said...

Tyro,

You know, I'm not sure exactly what I get charged for, but I know my spreadsheet has two columns. One is simply "surcharges" and the other is "SEC fee." I'm assuming that the NYSE fees go into the "surcharges" area. I know that in August, these two columns came to about $1500.

I'll call my company tomorrow and try to get them to break it down for me. Until I hit my slump this year I never even bothered to look at these things...

I like your reassuring tone though... I hope that it doesn't effect me too much. I'll start to really keep track of the fees from now until the end of September and see how they increase in October. In fact, I'll add the number to my blog each day so I keep track.

-DT

Richard Todd said...

Maybe eventually they will bump up the fees so much that the bid/ask sizes just grow in place all day, and no trades actually take place.

Dinosaur Trader said...

Imagine the opposite, if trading was free. The market would be most efficient if trading was free...

-DT

Tyro said...

Richard - the fees have been dropping like crazy over the last few years. They juggle things around to try to balance out profits with liquidity so while some things go up a bit, the general trend is down, down, down.

Back 20 years ago, fees were much higher. Don't you remember when brokers first provided $10/trade fees? I remember when $26/trade was a great deal. Trading worked just fine then.

Ray Pellecchia said...

DT -- Yes, all market orders are considered takers, as are marketable limit orders.

May I offer one unofficial suggestion I got from a colleague in response to your post: route orders that will post to NYSE Arca and get the rebate. Route orders that will take to NYSE and pay the lowest take fees in the business -- far less than on NYSE Arca, Nasdaq or anywhere else.

Hope that's of some help. Good luck!

PS -- Disclosure to anyone who doesn't know: I'm NYSE Euronext's blogger.

Dinosaur Trader said...

Ray,

Thanks, I appreciate that advice.

Can we just clear up one more thing... before the Hybrid, there were no "take" fees, correct?

-DT

Ray Pellecchia said...

Dino -- Prior to the change announced for October, we've always had the same fee whether you're taking or posting liquidity. Currently it's 2.75 cents per hundred. This is the first time we're differentiating between the two.

Dinosaur Trader said...

Ray,

It was .0275 before Hybrid? I don't remember any fees before Hybrid for market orders...

-DT