The Great Rebate Debate..Broker Disclosure IS Front-Burner Topic


Exchange rebates paid to brokers for routing orders to their respective venues and the general issue with regard to the now ubiquitous “payment-for-order-flow” model that extends throughout the electronic trading ecosystem has been a topic of discussion for many years now. It may be confusing, but is certainly not an unknown concern to the universe of informed buy-side investors. For those who may be still be uninformed as to how/where/why/when (and how much?!) broker-dealers are on the receiving end of rebates, suffice to suggest its time you get yourself up to speed; your bottom-line can depend on it.


Image Courtesy of April 2014 Wall Street Journal

Courtesy of financial industry media outlet MarketsMedia’s all-star journalist Terry Flanagan most recent dissertation “Got Transparency?” it is one that deserves an accolade from altruists within the industry, if not a check under the hood or bottom of Terry’s car before he starts the engine.

“One aggravating factor is a lack of transparency. Many market participants do not know either the amount of the rebate or where it ends up.”

As Flanagan points out, “..In institutional equity trading, rebates have been a point of contention since the late 1990s, when Bill Clinton was U.S. President and the Dow Jones Industrial Average scaled 10,000 for the first time.

Supporters say exchanges paying rebates on order flow is a perfectly legitimate practice of rewarding customers and offering volume discounts. Helped by rebates, trading commissions have dropped substantially over the years; the biggest decline from 2005 to 2017 was 68% for the lowest-touch direct market access / algorithmic trades, according to Tabb Group research.

“Most buy-side firms operate with ‘all-in’ pricing models and aren’t provided granularity into fees by order, but the decisions on when and how to route to particular venues significantly impact execution performance…” according to Stino Milito, Co-Chief Operating Officer at Dash Financial Technologies.

On the other hand, critics say rebates create conflicts of interest, and shortchange end investors if brokers route in ways that disadvantages clients……Helped by rebates, trading commissions have dropped substantially over the years; the biggest decline from 2005 to 2017 was 68% for the lowest-touch direct market access / algorithmic trades, according to Tabb Group research.

 “There is absolutely crap disclosure about broker-dealer routing strategies,” according to Dave Weisberger of ViableMkts. “If you can’t get a high-level view of how brokers route and what the outcomes are, then how can you be talking about a transaction fee pilot, or making claims about what rebates do to destroy the market?

Are you a startup fintech or blocktech firm that is seeking to raise capital and finding yourself ‘short of’ a cogent business plan or the proper investor offering documents?

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To read the entirety of Terry Flanagan’s piece in the latest edition of MarketsMedia, click here

The Great Rebate Debate..Broker Disclosure IS Front-Burner Topic

Alibaba’s Silence Isn’t Golden For its I.P.O blog extract below courtesy of June 10 WSJ Aaron Back reporting.

Jack Ma, executive chairman of Alibaba. European Pressphoto Agency

Jack Ma, executive chairman of Alibaba. European Pressphoto Agency

As Alibaba Group prepares for the bright lights of Broadway, it is keeping potential investors in the dark. There is yet time to illuminate things.

The Chinese online-shopping giant is likely to release an updated regulatory filing soon in preparation for an initial public offering in New York, expected to raise more than $20 billion. A pre-IPO document released in May left gaping holes around Alibaba’s business and who controls it.

It seems a bare minimum to identify the more than two dozen partners who will effectively control Alibaba via special rights to appoint a majority of board members. The nature of these partners’ business relationships with Alibaba also should be known. It was a big oversight that the initial filing omitted this information. The Wall Street Journal has reported that the names of the partners will be included in the updated filing.

In addition, investors have complained that Alibaba didn’t break down results for its two moneymaking retail sites, Taobao and Tmall. Last month’s filing emphasized the importance of the Tmall business in the mix of the two. Faster Tmall growth means more revenue per item shipped. A higher Tmall contribution also would bode well for the transition to mobile devices, where it is harder to sell ads.

Do’s and Don’ts When Raising Capital thanks the Sydney Morning Herald for below extracts re: profile of top gun entrepreneur Greg Taylor and guidance on best ways to raise capital for start-up enterprises..

Entrepreneur Greg Taylor

Entrepreneur Greg Taylor

“..Raising capital is stressful and incredibly time consuming. It’s a full time job. So if you embark on a money raising mission, make sure your business is at a stage where it can survive (and hopefully flourish) with minimal input from you. The raise will demand most of your time and attention for the next little while.

It’s actually a lot like internet dating. You write a profile (information memorandum) you go on a first date (swipe right), you decide if you’d like to see each other again, (thank-you text), one party plays hard to get (valuation), meet the parents (due diligence), buy a ring (appoint lawyers), ask the question, (term sheet) and get married (settlement).

Once you’ve got a little seed money to work with, it really then becomes an issue of timing. If you go to the market looking for money before you have a concept or product, you don’t have as much leverage with investors and could potentially be beaten down on your valuation. So founders are generally better off building the product and getting as much traction as possible before courting investment to reduce the risk profile of their venture.The longer you can hold off, the more leverage you have with investors. But the longer you wait, the more risk there is that your competitors will land funds and get the jump on you. And it can be hard to play catch up.

Preparing the business for a capital raise correctly is critical. My advice is to find yourself someone who knows what they are doing. I was incredibly fortunate to have met a trusted adviser who works in the digital space.



  • Have all your legal documents prepared and in order.
  • Ensure the information you provide to potential investors is easily understandable and clear. Some aspects of the business may seem simple to you but complex to them. It’s always better to put more information than less.
  • Have all of your company information (ABNs, insurance, contracts) centralised and easily accessible so that it can be supplied to potential investors upon request.
  • You will end up getting married, so make sure your new partners and you both have the same goals (exit strategy, founders’ roles etc) and that the culture is right.
  • Be prepared to negotiate and get a deal done.


  • Don’t think you have the cash in the bank until it’s in the bank
  • Don’t be cocky. You need to show investors that you not only have a good idea, but are willing to listen and learn off them. Most of the time, they are investing 80 per cent in you and 20 per cent in the product.
  • Don’t have an unrealistic goal on valuation – its better to have 10 per cent of something huge than 100 per cent of nothing.

Greg Taylor is the co-founder and CEO of Clipp, an app that allows consumers to open, view, share and pay their bar tab or restaurant bill seamlessly and securely. Clipp secured $1.55m investment in November 2013. Greg sold his previous venture, eCoffeCard for an undisclosed amount earlier this year.

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