What Incentives Do Exchanges Offer to Market Makers to Ensure Narrow Spreads?

Exchanges offer various incentives to market makers to encourage them to provide deep liquidity and narrow spreads. These often include reduced or negative trading fees (rebates) for adding liquidity (maker orders).

They may also offer faster execution speeds, co-location services, and exclusive data feeds. These benefits lower the market maker's operating costs, allowing them to quote tighter spreads while maintaining profitability.