Institutional Order Handling and Broker-Affiliated Trading Venues

Author:

Anand Amber1,Samadi Mehrdad2,Sokobin Jonathan3,Venkataraman Kumar4

Affiliation:

1. Syracuse University

2. Southern Methodist University

3. FINRA

4. Southern Methodist University

Abstract

Abstract Using detailed order handling data, we find that institutional brokers who route more orders to affiliated alternative trading systems (ATSs) are associated with lower execution quality (i.e., lower fill rates and higher implementation shortfall costs). To separate clients’ preference for ATSs from brokers’ routing decisions, we confirm these results for orders where brokers have more order handling discretion, matched broker analysis that accounts for ATS usage, matched child orders that account for client intent, and based on an exogenous constraint on ATS venue choice. Our results suggest that increased transparency of order routing practices will improve execution quality.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics,Finance,Accounting

Reference69 articles.

1. Performance of institutional trading desks: An analysis of persistence in trading costs;Anand;Review of Financial Studies,2012

2. Institutional trading and stock resiliency: Evidence from the 2007–2009 financial crisis;Anand;Journal of Financial Economics,2013

3. Can order exposure be mandated?;Anand;Journal of Financial Markets,2004

4. Does Smart Routing Matter?;Bacidore;Journal of Trading,2011

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