Editor’s note: This is general educational information about how liquidity provision in United States equities is defined, constrained and compensated, drawn from the Exchange Act, FINRA rules and the Commission’s 2024 amendments to Regulation NMS. It is not investment advice, and the official sources are listed at the end.
A market maker is paid for standing still while everyone else moves. The job is to quote a price to buy and a price to sell at the same time, in the same security, and to keep doing it. Three sources of revenue sit behind that: the difference between the two quotes, the fee schedule of the venue where the quote is posted, and, in narrow circumstances, payments from other market participants. The rules that govern each of the three were rewritten most recently in 2024.
The statutory definition is about willingness, not about size
The Exchange Act defines a market maker as any specialist permitted to act as a dealer, any dealer acting in the capacity of block positioner, and any dealer who, with respect to a security, holds himself out, by entering quotations in an inter-dealer communications system or otherwise, as being willing to buy and sell that security for his own account on a regular or continuous basis.
Three elements do the work in that sentence. The dealer trades for his own account, so inventory risk is his. He holds himself out publicly, so the quote is a commitment rather than a private willingness. And he does it on a regular or continuous basis, which is what separates a market maker from a firm that happens to be trading. Everything about how the role is paid follows from those three.
The spread is set by the tick, and the tick was just changed
The first revenue source is the spread. The Commission’s own worked example in the 2024 Regulation NMS amendments makes the mechanism concrete. Consider a liquidity provider willing to bid $10.121 to buy a stock and offer $10.124 to sell it. If the tick size is $0.005, the resulting quotes are $10.120 and $10.125, a spread of $0.005. If the tick size is $0.01, the quotes become $10.120 and $10.130, a spread of $0.01. The provider’s own economics did not change in either case. The rounding did.
That was the Commission’s argument for changing the increment. Too large a tick can increase transaction costs by artificially widening the difference between the highest price a buyer will pay and the lowest a seller will accept, and the Commission cited analysis that up to 74.3% of the share volume transacted in NMS stocks in 2023 may have bid-ask spreads constrained by the existing increment. As adopted, Rule 612(b)(2) requires quotes in NMS stocks priced at or above $1.00 per share to be in increments of $0.01 where the stock’s Time Weighted Average Quoted Spread over the evaluation period was greater than $0.015, and $0.005 where that measure was equal to or less than $0.015. For stocks priced below $1.00, the minimum increment is $0.0001.
The narrower tick matters to the quoting firm in both directions. It allows a quote that reflects the firm’s actual valuation more closely, and it reduces the per-share compensation available to whoever is first in the queue at the touch.
Venue fees and rebates are the second income line
The second source is the exchange fee schedule, and this is where the Commission acted hardest. Access fee caps limit what a trading centre may charge for execution against a protected quotation. Before the amendments the cap stood at 30 mils, or $0.0030 per share, unchanged since Regulation NMS was adopted in 2005. The Commission proposed a two-tier structure and, in the final rule, adopted a single 10 mil per share cap, $0.001, for all protected quotations priced $1.00 or more, together with a cap of 0.1% of the quotation price per share for protected quotations priced below $1.00.
The second change is less discussed and arguably more consequential for a liquidity provider’s accounting. New Rule 610(d) requires that all exchange fees and rebates be determinable at the time of an execution. The Commission’s stated reasons for the package include mitigating the conflict where a broker-dealer is incentivised to route to the exchange offering the most favourable fees or rebates, reducing the complexity of fee and rebate models, and increasing transparency of transaction fees and rebates. The effective date of the amendments was December 9, 2024, and the round lot definition adopted in the earlier market data infrastructure rules was accelerated to the first business day of November 2025.
The payment a market maker may not accept
The third category is the one with a bright line around it. FINRA Rule 5250 provides that no member or associated person shall accept any payment or other consideration, directly or indirectly, from an issuer of a security, or any affiliate or promoter of the issuer, for publishing a quotation, acting as market maker in a security, or submitting an application in connection with either.
The exceptions are narrow and specific. A member may accept payment for bona fide services, including investment banking services and underwriting compensation and fees. It may accept reimbursement of registration payments imposed by the SEC or state regulators and of listing fees imposed by a self-regulatory organisation. And it may accept any payment expressly provided for under the rules of a national securities exchange that have been filed with, or filed with and approved by, the SEC. The rule defines promoter broadly, reaching founders, directors and employees, consultants, advisers, accountants and attorneys to the issuer, holders of restricted securities under Securities Act Rule 144, and any beneficial owner of five percent (5%) or more of the public float of a class of the issuer’s securities.
Analysis: three revenue lines, three different regulators of them
The structure sets the boundaries of the three revenue lines rather than the risk appetite behind them. The spread is capped from below by the tick, the venue payment is capped from above by Rule 610©, and the issuer payment is prohibited outright by Rule 5250 apart from listed exceptions. A liquidity provider optimises inside those three walls, and every one of them was moved in the last two years.
The interaction between the first two is where the 2024 amendments will show up first. The Commission set the access fee cap at 10 mils while the minimum increment for the tightest stocks fell to $0.005, which compresses the ratio between what a venue can charge for an execution and the spread available on the quote. That ratio is what makes rebate-driven routing worth arguing about, and Rule 610(d)'s requirement that fees and rebates be determinable at execution removes the ambiguity that made the argument hard to settle. The Commission was explicit that the amendments were intended to accommodate the change in tick sizes rather than to stand alone.
The third wall is the oldest and the least likely to move. Rule 5250 addresses the quotation itself: the statutory definition ties a quote to a dealer trading for his own account, and the rule bars the issuer from paying for the act of quoting. The exceptions preserve the two payments that are transparent and separately regulated, investment banking fees and exchange-approved payments filed with the Commission. What is worth noticing is that this last constraint is the one an ordinary reader can check, since the exchange programmes that are permitted are on the public rule filing record and the fees that are not permitted are not paid at all. A reader who wants to know what a market maker earns in a given security is looking at a published fee schedule, a published tick regime and a spread they can observe; what is not observable from those three is the firm’s inventory position and its cost.
