Subsidizing Liquidity: The Impact of Make/Take Fees on Market Quality —Internet Appendix— I Measuring Competition: The Herfindahl Index

We quantify competition among traders by the Herfindahl Index. The index is widely used to assess market concentration and it is computed as the sum of the squared market shares. We study the market for liquidity provision. In an electronic limit order book, liquidity is provided by passive orders and a trader’s market share is the fraction of passive limit order volume that this trader provides. The Herfindahl Index for different levels of liquidity providing entities (e.g., broker, trader) per day t per security i is