Group Co.
Rebate – a partial refund to someone who has paid too much money for tax, rent, or a utility.
Discount – a deduction from the usual cost of something, typically given for prompt or advance payment or to a special category of buyers.
Joe Saluzzi
In other words, rebates involve cash being sent back to someone while a discount is a reduction of a fee that is still charged.
Last week, IEX announced a new incentive program for market makers that are quoting in soon-to-be IEX listed stocks. The word “incentive” seems to have worked up some well-known IEX critics and they immediately started saying that IEX, which has always been anti-rebate, would now be offering rebates. But a closer look at the incentive program shows that what IEX is offering is a discount and not a rebate. We were asked by the Financial Times our opinion of the new IEX pricing plan and responded:
Here is how their incentive program will work according to an IEX blog post :
The IEX Enhanced Market Maker (IEMM) Program offers a discount on trading fees to market makers when they meet stringent market making requirements in IEX-listed stocks with only their principal order flow (not that of their clients).
There are two tiers in our IEMM Program:
- Inside Tier?—?To qualify for the Inside Tier, firms must spend at least 20% of the trading day quoting at the National Best Bid and/or Offer for IEX-listed stocks. Said another way, the average of a firm’s time quoting at the NBB and NBO must be at least 20% per day.
- Depth Tier?—?To qualify for the Depth Tier, firms must quote within the greater of 1 MPV or 3 basis points of the NBBO at least 75% of the trading day. This tier is unique to the IEMM Program.
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