Smart Order Routing Technology in the New European Equity Trading Landscape

Proceedings of the 9th IFIP Conference on e-Business, e-Services, and e-Society (I3E 2009)

Posted: 22 Sep 2009

See all articles by Bartholomäus Ende

Bartholomäus Ende

Goethe University Frankfurt Faculty of Economics and Business Administration

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration

Marco Lutat

Goethe University Frankfurt Faculty of Economics and Business Administration

Date Written: September 21, 2009

Abstract

In Europe, fragmentation of execution venues has been triggered by increasing competition among markets and a new regulatory environment set up by MiFID. Against this background, IT-based sophisticated order routing systems (Smart Order Routing systems) promise to assure efficiency despite fragmented markets. This raises the question on the relevance and economic value of this technology in European equity trading. Based on order book data for EURO STOXX 50 securities of ten European electronic execution venues, this paper assesses the potential of Smart Order Routing technology by measuring the performance of actual executions in European order book trading relative to a Smart Order Router implementation that detects and accesses best European prices. We identify 6.71% full trade troughs and 6.45% partial trade-throughs in our dataset enabling for significant absolute and relative savings. This indicates that Smart Order Routing technology can provide business value by improving order executions in European cross-tradable equities.

Keywords: e-Finance, auction, economics of IS, empirical study, marketplaces

JEL Classification: G15

Suggested Citation

Ende, Bartholomäus and Gomber, Peter and Lutat, Marco, Smart Order Routing Technology in the New European Equity Trading Landscape (September 21, 2009). Proceedings of the 9th IFIP Conference on e-Business, e-Services, and e-Society (I3E 2009). Available at SSRN: https://ssrn.com/abstract=1476272

Bartholomäus Ende (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=653

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=478

Marco Lutat

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=548

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