Level Playing Field Market Design
Remove structural advantages and bind liquidity privileges to obligations
- Difficulty
- Expert
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 91%
Level Playing Field Market Design evaluates a venue by tracing who pays, who receives privileged information, who controls routing, and what obligations accompany each benefit. The framework removes mechanisms that distort routing or reward speed alone, such as asymmetric rebates, proprietary informational advantages, and selective access. It then creates simple, uniform participation rules and requires designated liquidity providers to remain meaningfully present rather than posting nominal quotes or withdrawing during stress. Reforms should be tested through controlled pilots and judged by effective spread, executable size, market impact, fill quality, and resilience—not merely headline liquidity. The intended output is a market where diverse participants can compete, genuine orders interact without hidden tiering, and apparent liquidity remains usable when investors actually need it.
Origin
Extracted from Masters in Business, where Joe Saluzzi contrasts conflicted exchange structures with IEX's flat fees, speed buffer, and cleaner institutional liquidity.
Core principles
- 01Competition is beneficial only when participants receive transparent and fair access
- 02Privileges such as rebates and superior data create conflicts of interest
- 03Market-making benefits should come with enforceable liquidity obligations
- 04Equal treatment matters more than eliminating any particular trader type
- 05Small pilots can test reforms before market-wide adoption
How to run it
- 1
Map the incentives
Document how the venue, brokers, market makers, data buyers, and investors make or lose money. Highlight revenue from rebates, proprietary feeds, colocation, and internal routing.
Pro tip Follow the economics of each order from submission through execution.
Watch out A venue's public fairness claim may conflict with its actual revenue model.
- 2
Locate structural advantages
Identify differences in speed, data visibility, fees, order priority, and access to hidden flow. Determine whether any class can infer or act on another participant's demand first.
Pro tip Examine technical feeds and order-type specifications, not just headline rules.
Watch out Nominal availability does not create practical equality when access requires costly infrastructure.
- 3
Simplify participation rules
Replace asymmetric maker-taker economics and selective treatment with a clear, uniform fee and access model. Ensure the same substantive information reaches participants under the same rules.
Pro tip Prefer rules that can be understood without reconstructing dozens of complex order types.
Watch out Complexity can conceal advantages even when every rule is technically public.
- 4
Attach obligations to privileges
Require firms receiving market-maker status or special economics to quote meaningful size and remain present under defined conditions. Make withdrawal rules explicit and enforceable.
Pro tip Define obligations using executable size and stressed conditions, not nominal one-share presence.
Watch out Weak obligations can preserve the appearance of liquidity without resilience.
- 5
Neutralize pure speed games
Use mechanisms such as synchronized access or a short speed buffer where latency advantages damage execution quality. Preserve legitimate market making while reducing opportunities to race ahead of demand.
Pro tip Measure whether average fill size and post-trade stability improve after the change.
Watch out A speed control alone cannot fix conflicted fees or selective disclosure.
- 6
Pilot and measure
Test reforms on a bounded group of securities or participants before broad implementation. Compare effective spreads, depth, fill size, market impact, and behavior during volatility.
Pro tip Include stressed-market tests because calm-market averages can overstate resilience.
Watch out Judging only quoted spreads can reward shallow or fleeting liquidity.
In the wild
A new venue charges the same flat fee whether a participant supplies or removes liquidity, delays all incoming orders equally through a short buffer, and does not sell selective early looks at institutional demand. It publishes simple rules and measures average executable fill size.
→ Institutional orders receive larger clean fills while strategies dependent on preferential speed become less attractive.
A regulator selects a bounded group of thinly traded companies, widens their minimum tick, and requires participating market makers to display meaningful size for defined periods. Results are compared with an untreated control group.
→ The pilot reveals whether stronger economics plus real obligations attract durable liquidity without imposing excessive investor costs.
Common mistakes
Confusing fragmentation with competition
More venues can increase choice while also creating latency gaps, routing conflicts, and opportunities to exploit fragmented quotes.
Rewarding market makers without obligations
Special pricing without meaningful quoting duties allows liquidity providers to collect benefits in calm markets and leave during stress.
Measuring only headline spreads
A narrow quote with negligible executable size can be worse for real investors than a slightly wider market containing durable depth.
Is it for you?
Best for
It is best for exchange designers, regulators, brokers, and institutions evaluating whether a trading venue operates fairly and resiliently.
Not ideal for
It is not a substitute for a trader's order-level execution strategy or for enforcement against clearly illegal manipulation.
From the transcript
“They got rid of rebates. Okay, there's no there's a flat fee on the I X exchange.”
“They got rid of the speed advantage by putting in something you know, Brad will tell you more than I need to buffer.”
“I want to interact with every piece of liquidity, but I want to do it on a fair and level playing field.”
From the episode
Themis Trading LLC Joseph Saluzzi: Masters in Business (Audio)
Trading LLC Joseph Saluzzi