Bank of America Puts HFT Rebate Arbitrage back in Spotlight

As reported by Jim Kim, high-frequency traders–at least the ones who engage in liquidity rebate  arbitrage–have been more than thankful for the Bank of America stock swoon over  the last year.

As it headed toward penny stock status, it quickly became the new Citigroup in terms of being the  most profitable stock to churn for the sake of maker-taker rebates. We noted  that the stock had everything the HFT crowd wanted in a gravy train stock.

The AP reminds us that like Citigroup before it, the Bank of America  stock now accounts for about 10 percent of all volume on the New York Stock  Exchange. For market structure experts, this added liquidity–if that what it  truly is–comes at a cost. While many lump all high-frequency trading into a  single bucket, that’s perhaps not the best way to look at it. Most would agree  that high-frequency traders in general have added liquidity in spots and helped  narrow spread, and in so doing raised execution quality. But the rebate  arbitrageurs have always generated lots of debate, especially about the need to  tweak the maker-taker payment set-ups at exchanges.

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