Can Brokers Have It All? On the Relation between Make-Take Fees and Limit Order Execution Quality

52 Pages Posted: 15 Dec 2013 Last revised: 29 Oct 2015

Robert H. Battalio

University of Notre Dame - Department of Finance

Shane A. Corwin

University of Notre Dame - Mendoza College of Business

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance

Date Written: October 20, 2015

Abstract

We identify retail brokers that seemingly route orders to maximize order flow payments: selling market orders and sending limit orders to venues paying large liquidity rebates. Angel, Harris, and Spatt (2011) argue that this type of routing may not always be in customers’ best interests. For both proprietary limit order data and a broad sample of trades from TAQ, we document a negative relation between several measures of limit order execution quality and rebate/fee level. This finding suggests that order routing designed to maximize liquidity rebates does not maximize limit order execution quality and, thus, brokers cannot have it all.

Keywords: make take fees, limit order execution quality, best execution

JEL Classification: G10, G23

Suggested Citation

Battalio, Robert H. and Corwin, Shane A. and Jennings, Robert H., Can Brokers Have It All? On the Relation between Make-Take Fees and Limit Order Execution Quality (October 20, 2015). Available at SSRN: https://ssrn.com/abstract=2367462 or http://dx.doi.org/10.2139/ssrn.2367462

Robert H. Battalio

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)

Shane A. Corwin (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

240 Mendoza College of Business
Notre Dame, IN 46556-0399
United States

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-2696 (Phone)
812-855-5875 (Fax)

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