---
title: "Commercial Relationships with Venues, Brokers and Vendors"
book: "The Desk and the Firm"
subject: quant
language: en
chapter: 23
exercises: 8
source: https://one-course.com/books/quant/16/en/chapter/23-commercial-relationships-with-venues-brokers-and-vendors
---

# Chapter 23 — Commercial Relationships with Venues, Brokers and Vendors

Nasdaq’s Qualified Market Maker programme, as its November 2025 rule filing described it, paid an extra rebate of $0.000075 a share on liquidity added in most US stocks to a member that added more than 1.25% of consolidated volume in a month and quoted at the national best bid or offer at least half the time in an average of at least 2 700 symbols a day. For a firm that already trades that much in that many names, the rebate is money for nothing. For a firm a third of that size, meeting the terms means trading and quoting it would not otherwise do, at a cost far above the rebate. The same published terms are a different deal for each firm, and what each can obtain in negotiation depends on what it can walk away to.

## 23.1 What is negotiable

A trading firm’s commercial relationships are with venues (fees, rebates, programmes, connectivity), brokers (clearing, prime brokerage, execution) and vendors (data, software, hosting). Some terms are published and the same for all: exchange fee schedules are rule filings (Book 1). Others are negotiated: clearing rates, prime-brokerage margin and financing (chapter 14), vendor licences (chapter 22), and, within a published framework, which programme a firm joins and how its obligations are measured.

**Definition 23.1 (Best alternative to a negotiated agreement, reservation value).**

A party’s *best alternative to a negotiated agreement* is what it will do if this negotiation fails: another venue, broker or vendor, building the capability itself, or doing without. Its *reservation value* is the value of that alternative: the worst terms it should accept.

**Definition 23.2 (Zone of possible agreement).**

The *zone of possible agreement* is the set of terms that give each party at least its [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna); when it is empty, no agreement is better for both than their alternatives.

Fisher and Ury’s *Getting to Yes* (1981) made the best alternative the centre of practical negotiation, and Raiffa’s *The Art and Science of Negotiation* (1982) its analysis. Nash (1950) gave the split that the chapter uses: with equal bargaining power, each side gets its [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) plus half of the joint gain above both [reservation values](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna).

**Proposition 23.3 (Nash’s split of a transfer).**

Let an agreement create a gain $G$ for the venue and a cost $C$ for the firm, before a transfer $T$ from the venue to the firm, and let the [reservation values](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) be $r_v$ and $r_f$. The [zone of possible agreement](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-zopa) is $C+r_f\le T\le G-r_v$, non-empty exactly when $G-C\ge r_f+r_v$. The Nash bargaining solution with the firm’s bargaining weight $\beta$ is

$$
T^*=C+r_f+\beta\,(G-C-r_f-r_v).
$$

**Proof.** The firm’s gain is $T-C$ and the venue’s $G-T$; they accept when $T-C\ge r_f$ and $G-T\ge r_v$. The Nash solution maximises $(T-C-r_f)^\beta(G-T-r_v)^{1-\beta}$; setting the derivative of its logarithm to zero gives $\beta/(T-C-r_f)=(1-\beta)/(G-T-r_v)$, whose solution is $T^*$. ∎

## 23.2 Market-maker programmes and tiers

**Definition 23.4 (Volume commitment, shortfall penalty).**

A *volume commitment* is a firm’s undertaking to trade, add or quote at least an agreed amount on a venue or with a counterparty over a period, in exchange for better terms. A *shortfall penalty* is the charge due, or the benefit forfeited, when the commitment is not met.

Book 1 introduced volume tiers and incentive programmes, and Book 11 the tier cliff: a rate that applies to every share once a threshold is met. A market-maker programme adds obligations to the cliff, and the firm must price both: the shares it would add to reach the volume threshold (at a loss per padded share) and the symbols it would quote at the best price that it would not quote otherwise (at a cost per symbol-day, the adverse selection of Book 11’s quoting model). [Listing 23.1](#lst-fm-commercial-relationships-with-venues-brokers-and-vendors-value) values a programme this way.

```python
def daily_value(prog, firm, tcv):
    """The programme's daily net value when the firm pads up to the requirements (dollars a day)."""
    need = max(0.0, prog.volume_share - firm.added_share) * tcv
    extra_symbols = max(0, prog.symbols - firm.symbols)
    rebate = prog.rebate * (firm.added_share * tcv + need)
    pad = need * firm.pad_loss
    quote = extra_symbols * firm.symbol_cost
    return {"rebate": rebate, "padding": pad, "quoting": quote, "net": rebate - pad - quote,
            "padded_shares": need, "extra_symbols": extra_symbols}


def breakeven_share(prog, firm_of_share, tcv, lo=1e-5, hi=0.05, tol=1e-9):
    """The natural added-volume share above which the programme's net value is positive; firm_of_share(a) builds the
    firm's profile at share a. Bisection; None if the value is negative over the whole range."""
    f = lambda a: daily_value(prog, firm_of_share(a), tcv)["net"]  # noqa: E731
    if f(hi) <= 0:
        return None
    if f(lo) > 0:
        return lo
    while hi - lo > tol:
        mid = (lo + hi) / 2
        lo, hi = (mid, hi) if f(mid) <= 0 else (lo, mid)
    return hi


def venue_value(firm, prog, tcv, attract, capture):
    """The venue's daily gain before paying the rebate: the extra taking flow the firm's liquidity attracts, at the
    venue's net capture per share."""
    added = max(firm.added_share, prog.volume_share) * tcv
    return attract * added * capture


def zopa(venue_gain, firm_cost, r_f, r_v):
    """(lowest transfer the firm accepts, highest the venue offers) in dollars a day; empty if low > high."""
    return firm_cost + r_f, venue_gain - r_v

```

***Listing 23.1.** A programme’s daily value to a firm that pads its activity up to the requirements, the break-even volume, the venue’s gain and the zone of agreement. code/firm/dealterms/firm_dealterms.py*

**As of September 2026 — A published market-maker programme.**

Nasdaq’s rule filing SR-NASDAQ-2025-088 (Federal Register, 19 November 2025) describes the additional rebate of its Qualified Market Maker programme as $0.000075 a share in Tapes A and C ($0.00005 in Tape B) for members adding liquidity above 1.25% of consolidated volume, quoting at the NBBO at least 50% of the time in an average of 2 700 symbols a day (1 200 in Tape A) and having increased their added liquidity by 0.50% of consolidated volume since May 2020. The filing proposed replacing it with $0.0001 a share for members adding above 0.325% of consolidated volume with at least 95% of their activity adding liquidity, and a $0.0027 credit for midpoint liquidity above 20 million shares a day. Fee programmes change by filing.

## 23.3 Tutorial: the programme

**Goal.** Value a market-maker programme with published terms for firms of every size, find the volume above which it pays, and find the terms a small and a large firm each obtain by Nash bargaining. **End state:** the value chart ([Figure 23.1](#fig-fm-commercial-relationships-with-venues-brokers-and-vendors-value)) and the zones of agreement ([Figure 23.2](#fig-fm-commercial-relationships-with-venues-brokers-and-vendors-zopa)).

1. **The programme.** The dated box’s terms: $0.000075 a share on added volume, 1.25% of consolidated volume, 2 700 symbols at the NBBO half the time. Consolidated volume is taken as 12 billion shares a day (an input), so the volume requirement is 150 million shares a day.
2. **The firms.** A firm adding a share $a$ of consolidated volume quotes naturally in $2\,700\,a/1\%$ symbols; padding costs $0.001 a share and an extra symbol at the NBBO $2 a day (inputs). The small firm adds 0.4% and quotes in 1 080 symbols; the large firm adds 2% and quotes in 5 400.
3. **The venue.** Each share the firm adds attracts 0.3 shares of taking flow, on which the venue earns $0.0005 net.
4. **The bargain.** `fm_deals.deal(firm, r_f)` computes the zone and the Nash transfer; the large firm’s outside option is a rival venue’s programme worth $10 000 a day, the small firm has none.

![The published programme’s daily net value to a firm, by the firm’s natural added volume: below the requirement the firm pays to pad its volume and quote extra symbols. The value turns positive at 1.16% of consolidated volume. Data: fm_deals.curve.](https://one-course.com/images/onecourse/chapters/quant-16/fm-commercial-relationships-with-venues-brokers-and-vendors/fig-28ebcd61b32f.svg)

***Figure 23.1.** The published programme’s daily net value to a firm, by the firm’s natural added volume: below the requirement the firm pays to pad its volume and quote extra symbols. The value turns positive at 1.16% of consolidated volume. Data: `fm_deals.curve`.*

The programme pays for itself only above 1.16% of consolidated volume, just below the requirement: padding costs $0.001 a share against a rebate of $0.000075, so a firm must be almost there already. For the small firm the published terms are ruinous: it earns $11 250 a day of rebate for $102 000 of padding and $3 240 of extra quoting. The venue gains $22 500 a day from the liquidity, far less than the firm’s costs: the zone of agreement is empty, and no rebate would make the published terms worth it. A programme tailored to the small firm’s natural activity (0.4% and 1 080 symbols) costs it nothing to meet; the venue gains $7 200 a day, and the Nash split gives the firm $3 600, which is $0.000075 a share, the published rate. The large firm meets the published terms without changing anything: its costs are zero, the venue gains $36 000 a day, and with a rival programme worth $10 000 a day as its outside option the Nash split gives it $23 000 a day, $0.000096 a share, 28% above the published rebate. Without the outside option it would get exactly the published $18 000 a day ([Figure 23.3](#fig-fm-commercial-relationships-with-venues-brokers-and-vendors-pareto)).

![The range between the firm’s lowest acceptable rebate and the venue’s highest, and the Nash rebate (dots). For the small firm under the published terms the firm needs $105 000 a day and the venue gains $22 500: the range is inverted and there is no agreement. Data: fm_deals.deal.](https://one-course.com/images/onecourse/chapters/quant-16/fm-commercial-relationships-with-venues-brokers-and-vendors/fig-e41b637c7b8b.svg)

***Figure 23.2.** The range between the firm’s lowest acceptable rebate and the venue’s highest, and the Nash rebate (dots). For the small firm under the published terms the firm needs $105 000 a day and the venue gains $22 500: the range is inverted and there is no agreement. Data: `fm_deals.deal`.*

![The large firm’s bargain in payoff space: every rebate splits the venue’s $36 000 a day of gain along the line; the firm’s outside option puts its reservation value at $10 000; the Nash split halves what is left above it, $23 000 to the firm and $13 000 to the venue. Data: fm_deals.deal.](https://one-course.com/images/onecourse/chapters/quant-16/fm-commercial-relationships-with-venues-brokers-and-vendors/fig-e6efdc8359e9.svg)

***Figure 23.3.** The large firm’s bargain in payoff space: every rebate splits the venue’s $36 000 a day of gain along the line; the firm’s outside option puts its [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) at $10 000; the Nash split halves what is left above it, $23 000 to the firm and $13 000 to the venue. Data: `fm_deals.deal`.*

## 23.4 Clearing, prime-brokerage and connectivity contracts

The same arithmetic applies to every contract with a counterparty that values the firm’s business. A clearing broker values a firm’s volume and margin balances, and its [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) is the cost of the capital and operations the account uses; a prime broker values financing spreads and balances against the [house margin](https://one-course.com/books/quant/16/en/chapter/14-treasury-and-funding#def-fm-treasury-and-funding-house) it must hold (chapter 14); a data vendor values the licence (chapter 22). The firm’s [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) is its best alternative: another broker, a second vendor, a direct connection. Each contract has terms besides price that move value: minimum commitments with shortfall penalties, notice periods, [most-favoured-nation clauses](https://one-course.com/books/quant/16/en/chapter/4-the-asset-manager-and-the-fund#def-fm-the-asset-manager-and-the-fund-side) (chapter 4), service levels (Book 14) and the right to terminate on a change of terms.

**Remark 23.5 (Commitments are options written by the firm).**

A [volume commitment](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) with a [shortfall penalty](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) is a put the firm sells to its counterparty: if the firm’s business shrinks, it pays. Its price is the better rate; its cost is the expected penalty, largest when the firm’s own volume is most uncertain, which is when a new strategy or market is being built.

## 23.5 Leverage: what a firm of each size has

Leverage in a negotiation is the gap between one’s [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) and the other side’s. A large firm has outside options (rival venues compete for its flow, several brokers want its account) and brings value the counterparty cannot easily replace; its terms improve with both. A small firm has few alternatives and brings little that cannot be replaced; published terms designed for large firms are worth nothing to it, and its best move is to ask for terms shaped to its activity, where the zone of agreement exists. The chapter’s numbers show both: the same programme is worth $23 000 a day to a large firm that bargains, and nothing to a small firm unless the terms are tailored.

**Method 23.6 (Negotiating a commercial contract).**

1. Value the deal to the firm at its actual activity, including the cost of every obligation, commitment and penalty.
2. Establish the firm’s best alternative and its value; improve it before negotiating (a second venue, a second broker).
3. Estimate the counterparty’s gain and its alternative: what the firm’s business is worth to it.
4. Negotiate terms, not only price: requirements measured on the firm’s own activity, penalties capped, notice periods, termination rights.
5. Record every agreed term as data (the build of this chapter) and monitor it monthly.

## 23.6 Build: deal terms

**Purpose.** Deal packages as data, their value to both sides, [reservation values](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna), the zone of agreement and the Nash split.

**Interface.** `firm.dealterms`: `Programme`, `Firm`, `daily_value`, `breakeven_share`, `venue_value`, `zopa`, `nash_transfer`; base fee tiers from Book 1’s `firm.feesched`.

**Rules.** Padding and extra quoting are priced at the firm’s own costs; the rebate is a transfer; no Nash transfer when the zone is empty.

**Acceptance tests.** `code/firm/dealterms/tests/`: value on hand numbers; the break-even share; the zone and the Nash split with a bargaining weight.

**Stretch.** Uncertain volume and the expected [shortfall penalty](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit); several venues bidding for the same flow; multi-year terms with notice.

Sources and further reading

- Nasdaq, SR-NASDAQ-2025-088, Federal Register 90 FR 52123, 19 November 2025.
- J. F. Nash, “The bargaining problem”, *Econometrica* 18(2), 1950; R. Fisher and W. Ury, *Getting to Yes* , 1981; H. Raiffa, *The Art and Science of Negotiation* , 1982.

## 23.7 Exercises

**Exercise 23.1 ★.**

What daily rebate does a firm earn at exactly the volume requirement, and over 252 days?

**Solution of Exercise 23.1.**

$150$ million shares $\times\$0.000075=\$11\,250$ a day, $2.83 million over 252 days.

**Exercise 23.2 ★.**

Define the [best alternative to a negotiated agreement](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) and the [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) for a firm negotiating a clearing contract.

**Solution of Exercise 23.2.**

The best alternative is another clearing broker (or self-clearing); the [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) is the all-in cost of that alternative, including margin terms and the cost of moving: the worst terms the firm should accept from its current broker.

**Exercise 23.3 ★.**

What do padding and extra quoting cost the small firm each day under the published terms?

**Solution of Exercise 23.3.**

It pads 102 million shares a day at $0.001, $102 000, and quotes 1 620 extra symbols at $2, $3 240.

**Exercise 23.4 ★★.**

Prove the Nash transfer of [Proposition 23.3](#prop-fm-commercial-relationships-with-venues-brokers-and-vendors-nash) and apply it to the large firm.

**Solution of Exercise 23.4.**

See the proof of [Proposition 23.3](#prop-fm-commercial-relationships-with-venues-brokers-and-vendors-nash). Large firm: $C=0$, $r_f=10\,000$, $G=36\,000$, $\beta=0.5$: $T^*=10\,000+0.5\times26\,000=\$23\,000$ a day, $0.000096 a share on 240 million shares.

**Exercise 23.5 ★★.**

Why is the small firm’s zone of agreement empty under the published terms, and what changes with tailored terms?

**Solution of Exercise 23.5.**

Its costs of meeting the obligations, $105 240 a day, exceed the venue’s gain from its liquidity, $22 500: no transfer satisfies both. Tailored terms remove the costs, and the venue’s $7 200 gain is shared.

**Exercise 23.6 ★★.**

Why is a [volume commitment](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) with a [shortfall penalty](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) dearest for a firm building a new business?

**Solution of Exercise 23.6.**

Its volume is most uncertain then, so the probability and size of a shortfall are largest; the commitment is a put it has sold on its own growth.

**Exercise 23.7 ★★★.**

*Coding.* Give the large firm a bargaining weight of 0.3 instead of 0.5. What rebate per share does it obtain?

**Solution of Exercise 23.7.**

$10\,000+0.3\times26\,000=\$17\,800$ a day, $0.000074 a share: slightly below the published rate.

**Exercise 23.8 ★★★.**

*Find the flaw.* “The programme pays $0.000075 a share: at our volume that is $2.8 million a year, so we should join.”

**Solution of Exercise 23.8.**

$2.8 million a year is the rebate at the required volume; a firm below it must pad its volume and quote extra symbols to qualify, which on the chapter’s costs costs more than the rebate unless it is already above 1.16% of consolidated volume.

## 23.8 Problem: The Programme

**Problem 23.1.**

Weekend problem — the programme

Two firms, one small and one large, consider the same market-maker programme, and each must decide whether to join and what to ask for.

**Part I — Negotiation.**

1. Define the best alternative, the [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) and the [zone of possible agreement](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-zopa) .
2. State and prove [Proposition 23.3](#prop-fm-commercial-relationships-with-venues-brokers-and-vendors-nash) .
3. What is negotiable with a venue, a broker and a vendor?
4. Define a [volume commitment](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) and a [shortfall penalty](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) .

**Part II — The programme.**

5. State the published terms and their source.
6. How does the chapter cost the obligations?
7. Give the net value curve and the break-even volume.
8. Why is the break-even so close to the requirement?

**Part III — The bargains.**

9. Give the small firm’s value, the venue’s gain and the zone under the published terms.
10. Give the tailored terms’ zone and Nash transfer.
11. Give the large firm’s zone and Nash transfer, with and without its outside option.
12. What does the outside option add?
13. How would a lower bargaining weight change the large firm’s rebate?

**Part IV — Decisions.**

14. Should the small firm join? What should it ask for?
15. Should the large firm join? What should it ask for?
16. How would you improve the small firm’s best alternative?
17. Which non-price terms would you negotiate?
18. How would you monitor the agreement once signed?
19. State the *named result* : the volume above which a market-maker programme’s discount pays for its obligations, and the Nash-bargaining fee that a small and a large firm each obtain.
20. In two sentences, write each firm’s negotiating position.

**Solution of Problem 23.1.**

1. See Definitions [23.1](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna) and [23.2](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-zopa) .
2. See [Proposition 23.3](#prop-fm-commercial-relationships-with-venues-brokers-and-vendors-nash) .
3. Venue: programmes, obligations’ measurement, connectivity; broker: rates, margin and financing, service; vendor: licences, counts, terms.
4. See [Definition 23.4](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) .
5. See [Box 23.1](#dat-fm-commercial-relationships-with-venues-brokers-and-vendors-qmm) .
6. Padded shares at a loss per share and extra symbol-days at the NBBO at a cost per symbol.
7. Negative below the requirement, positive from 1.16% of consolidated volume.
8. Padding costs $0.001 a share against a rebate of $0.000075, so each padded share costs about thirteen times its rebate.
9. Net $-\$93\,990$ a day; venue gain $22 500; empty zone.
10. Zone $0 to $7 200 a day; Nash $3 600, $0.000075 a share.
11. Zone $10 000 to $36 000; Nash $23 000 ($0.000096 a share) with the outside option, $18 000 without.
12. $5 000 a day: half of its value, by [Proposition 23.3](#prop-fm-commercial-relationships-with-venues-brokers-and-vendors-nash) .
13. At 0.3, $17 800 a day ( [Exercise 23.7](#exo-fm-commercial-relationships-with-venues-brokers-and-vendors-7) ).
14. Not on the published terms; it should ask for requirements measured on its own activity.
15. Yes; it should ask for more than the published rebate, using its rival venue as its outside option.
16. Connect to a second venue with a programme sized for small firms.
17. Measurement of obligations, capped penalties, notice and termination rights, most-favoured-nation terms.
18. Monthly against the firm’s own activity records, with alerts when a requirement is at risk.
19. Above 1.16% of consolidated volume the published programme pays; Nash gives the small firm $0.000075 a share on tailored terms (nothing on the published ones) and the large firm $0.000096.
20. Small: decline the published terms and ask for a programme sized to its activity, while building a second venue as an alternative. Large: join, and ask for a higher rebate backed by its rival venue’s offer.

## 23.9 Interview questions

**Interview question 23.1 ★ trader.**

What is a market-maker programme, and what does a venue get from it?

**Solution of Interview question 23.1.**

A rebate or discount for quoting and volume obligations; the venue gets displayed liquidity that attracts takers, whose fees it earns.

*What the interviewer is looking for: liquidity attracts flow.*

**Interview question 23.2 ★ trader.**

What is your best alternative when negotiating fees with your clearing broker?

**Solution of Interview question 23.2.**

Another clearing broker, or self-clearing if the firm is large enough; its value sets the [reservation value](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-batna).

*What the interviewer is looking for: a concrete alternative.*

**Interview question 23.3 ★★ researcher.**

A rebate programme requires a volume you reach in only half the months. How do you value it?

**Solution of Interview question 23.3.**

As an option: expected rebate in qualifying months against the cost of padding in months that would otherwise miss, and the value of the cliff on all shares in qualifying months.

*What the interviewer is looking for: expected value over the volume distribution.*

**Interview question 23.4 ★★ trader, researcher.**

Derive the Nash bargaining split of a surplus between two parties with outside options.

**Solution of Interview question 23.4.**

Maximise $(T-C-r_f)^\beta(G-T-r_v)^{1-\beta}$; $T^*=C+r_f+\beta(G-C-r_f-r_v)$.

*What the interviewer is looking for: outside options shift the split.*

**Interview question 23.5 ★★ risk.**

What risks does a [volume commitment](#def-fm-commercial-relationships-with-venues-brokers-and-vendors-commit) create?

**Solution of Interview question 23.5.**

Paying penalties when volume falls, being pushed to trade unprofitably to meet it, and lock-in to the counterparty.

*What the interviewer is looking for: the sold put.*

**Interview question 23.6 ★★★ researcher, trader.**

Two venues compete for your flow with rebate programmes. How would you decide where to send it?

**Solution of Interview question 23.6.**

Compare the all-in value per share at the flow each venue would get, including tier cliffs, obligations and fill quality; the best split may meet one venue’s threshold rather than dividing evenly.

*What the interviewer is looking for: cliffs and all-in value.*