Equity Exchange Fees and Revenues

Abstract

Fees charged by U.S. equity exchanges for services such as non-core market data, connectivity, and co-location have become controversial. Recently, the Securities and Exchange Commission required the exchanges justify hundreds of past fee increases. In their defense, exchanges argue that the fees that they charge are constrained by competition for order flow between the three major exchange families. To the authors’ knowledge, no extant work associates fee changes with exchange revenues. We gather fee increases and exchange financial statement information between 2006 and 2016 to examine the relation between fees and revenues. We find that, when statistically significant, revenue increases with fee increases without a consistently strong volume effect, which suggests that any decrease in subscriptions due to fee increases is more than offset by the revenue increase from the remaining subscribers.