A transaction levy makes one-tick market making unexecutable

The levy as a commission line

A proposed per-trade levy can be run through the same order twice: first as a commission line, then through a liquidity-filter that asks whether any edge remains.

On a 2,000-share purchase and sale in a name near 180, a quarter-of-one-percent levy is about 1,800 dollars, close to a 2,000-dollar gain at one dollar per share. A later, lower headline rate near three-tenths of one percent still dominates participants whose edge is measured in pennies.

The same 0.03 percent rate on 200,000 shares of a 50-dollar stock is about 3,000 dollars on that single ticket.

The liquidity-filter on one tick

A liquidity-filter checks that an intended order remains executable after every per-share cost is subtracted from the available edge.

At a 0.03 percent rate on a 25-dollar stock, the levy is about 0.0075 dollars per share. Capturing a one-cent spread then pays about 1.5 cents of tax on the two-sided round trip and loses about half a cent.

Why the book must widen

Editorial reading: a one-tick market-making book is an entry and exit rule whose captured-spread is the difference earned between buying at the bid and selling at the offer on a completed round trip. After the levy, that one-cent captured-spread is no longer executable.

Restoring a non-negative result after that levy requires posting at least a two-cent spread, and possibly more when not every trade is profitable. That step is quote-widening: posting a larger bid-offer gap so that remaining profit after the levy is no longer negative.

Who pays the extra implementation-cost

Implementation-cost is the full charge of completing an order, including an explicit levy plus any extra paid when the posted spread must widen. Wider posted spreads raise price impact for institutional size, and that extra cost is borne by the fund's end investors rather than absorbed only by the liquidity provider.

Volume-avoidance after the charge

Volume-avoidance is reducing or delaying trades to escape a per-transaction charge, which can leave positions open longer than planned.

If institutions delay sales to avoid the levy, positions that would have been closed can produce larger subsequent losses for the same end investors. Revenue estimates that assume current volume overstate collections if activity falls as traders and funds avoid the charge.