Stock exchange race: Competition and fee transformation

Decoding Stock Exchange Fees: Are Lower Costs Worth It?

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Reese Marlowe in Business & Economy April 2025 • 4 min read.

"Navigate the complex world of stock exchange fee structures and discover how competition impacts market stability and your investments."


The landscape of equity trading in Europe is undergoing a seismic shift, fueled by two primary forces: intensifying competition among trading venues and the ever-growing influence of technology. This transformation raises critical questions about the quality, efficiency, and accessibility of our equity markets. For investors and market participants, understanding these dynamics is more crucial than ever.

Fiercer competition, largely driven by regulations like the Market in Financial Instruments Directive (MiFID), has spurred the emergence of new trading platforms. These platforms, including multilateral trading facilities (MTFs) and systematic internalisers (SIs), operate alongside traditional, regulated stock exchanges, challenging the established order.

The rise of sophisticated technologies, particularly those used by high-frequency traders (HFTs), adds another layer of complexity. While technology promises increased efficiency and speed, it also introduces concerns about market stability and fairness, particularly in light of events like the 2010 flash crash in the US. This article dives deep into how fee structures have changed amidst this competitive and technological storm.

The Fee Frenzy: Competition and Costs

Stock exchange race: Competition and fee transformation

At the heart of this transformation lies the issue of trading costs. In a healthy market, transaction costs should be low, particularly the often-hidden implicit costs. Liquidity, or the ease with which assets can be bought and sold, is another key indicator of market quality. Fragmentation – the dispersion of trades across multiple platforms – has, in some ways, reduced liquidity on traditional stock exchanges. The million-dollar question is whether this fragmentation, coupled with intense competition, has ultimately improved or worsened overall market quality.

This prompts several critical questions, the most pertinent being: Has competition actually driven down explicit transaction costs, such as execution fees charged by major trading platforms? And if so, what are the consequences for equity markets and the stock exchanges themselves?
Here are key hypotheses to consider:
  • Are fees lower in markets with greater competition?
  • Does a decrease of lower fees impact the stock exchanges’ revenue?
  • Can lower revenues undermine the stability of stock exchanges and their ability to innovate?
  • Can equity markets invest in technology to avoid outages if profits coming from trading fees are lower?
Transaction costs have long been a subject of academic and industry scrutiny, with studies highlighting the intricate relationship between automation, volatility, liquidity, and overall trading expenses. Breaking down these costs, we find two primary categories: explicit costs, like commissions and fees, and implicit costs, which are harder to quantify but can significantly impact overall expenses. Explicit costs are easily measurable, where implicit costs related to market impact, price trending, timing risk, and opportunity costs are not. The fees charged by broker-dealers for their services, typically calculated in basis points (bps), represent the most important component of explicit costs. Spread cost, which compensates traders for liquidity, is indicative of the liquidity of the security. Considering this dynamic landscape, it's important to consider various factors related to costs.

Navigating the Future of Trading

The drive for efficiency and competitiveness in European equity markets has led to considerable changes in fee structures and trading practices. While increased competition has, in many cases, lowered explicit costs, the long-term implications for market stability, innovation, and accessibility remain a subject of debate. The ongoing evolution of trading technology, regulatory frameworks, and pricing models will continue to shape the landscape, requiring investors and market participants to stay informed and adapt to the ever-changing dynamics of the market. Ultimately, the goal is to create a more transparent, efficient, and resilient equity market that serves the interests of all stakeholders.

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