{"id":243717,"date":"2025-05-15T21:51:16","date_gmt":"2025-05-15T21:51:16","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/finance\/who-deserves-to-capture-spread\/"},"modified":"2025-05-15T21:51:16","modified_gmt":"2025-05-15T21:51:16","slug":"who-deserves-to-capture-spread","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=243717","title":{"rendered":"Who Deserves to Capture Spread?"},"content":{"rendered":"


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We recently discussed how fragmentation<\/a> undoubtedly adds to competition for venues<\/a>.\u00a0<\/p>\n

Of course, it also adds fixed and opportunity costs for traders.<\/p>\n

However, some of our recent studies suggest it may reduce competition for quotes<\/a>.<\/p>\n

Today, we look at trading economics from the perspective of trader setting the National Best Bid and Offer (NBBO). Our analysis suggests they are perhaps the biggest loser from increasing fragmentation, which, in turn, highlights how the economics of price setting and data use in the current market are quite unfair.<\/p>\n

A price setter wants to capture spreads<\/strong><\/h2>\n

If we look at how stock markets worked in the 1990s, and how futures markets still work today, trading was consolidated on one venue. In those single marketplaces, if you want to capture spread, you either have to wait until you get to the top of the queue or make NBBO prices better.\u00a0<\/p>\n

Trading and routing are also much simpler in that context: Everyone knows what and where the best prices are \u2014 and all traders have equal access to trade at those prices.<\/p>\n

One important player in that ecosystem<\/a> is the trader who sets the NBBO prices, the market maker. Because market makers want to capture spread, they typically:<\/p>\n