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Tim Quast
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We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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January 1, 2003

Cincinnati Exchange Raises the Rebate Bar

By Peter Chapman

The Cincinnati Stock Exchange, giving in to competitive pressures, will now pay to play.

The all-electronic mart, to remain attractive in the splintered Nasdaq world, will now pay specialists to post quotes in its system that lead to transactions. It previously charged the specialists.

In offering liquidity rebates, the Chicago-based stock exchange falls into line behind the top ECNs and Nasdaq. "We're following the lead of the rest of the Nasdaq community," acknowledged CSE chief executive David Colker. "We need to stay competitive with Nasdaq."

The rebates should help the Cincinnati sign up specialists for its year-old Nasdaq program. The number of its specialists has dropped to seven from 11 about two years ago. Listed volume has slumped. The mart lost two biggies-Charles Schwab and Fidelity - reportedly due to connectivity problems caused by the World Trade Center disaster.

Nasdaq trading got a boost when Island joined as a specialist earlier this year. The ECN powerhouse has transformed the CSE into the nation's third largest stock market, trading about 250 million shares per day.

Under the new program, specialists who post Nasdaq quotes on the Cincinnati that lead to a transaction will be paid three tenths of a cent ($0.003) per share. Previously, such "liquidity-providers" paid two-and-a-half tenths of a cent ($0.0025) per share.

To finance the new arrangement, the CSE will increase the charge to "liquidity-takers." Specialists who hit bids and lift offers will now pay four-tenths of a cent ($0.004) rather than the two-and-a-half tenths of a cent to do so. The CSE will keep the one-tenth of a cent difference.