Institutional Order Handling and Broker-Affiliated Trading Venues

50 Pages Posted: 11 Mar 2019 Last revised: 1 Feb 2021

See all articles by Amber Anand

Amber Anand

Syracuse University - Whitman School of Management

Mehrdad Samadi

Board of Governors of the Federal Reserve System

Jonathan S. Sokobin

FINRA

Kumar Venkataraman

Southern Methodist University (SMU) - Finance Department

Date Written: January 22, 2021

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.

Keywords: Broker; ATS; Trading Cost; Order Handling; Best Execution

JEL Classification: G10; G20

Suggested Citation

Anand, Amber and Samadi, Mehrdad and Sokobin, Jonathan and Venkataraman, Kumar, Institutional Order Handling and Broker-Affiliated Trading Venues (January 22, 2021). Available at SSRN: https://ssrn.com/abstract=3338129 or http://dx.doi.org/10.2139/ssrn.3338129

Amber Anand

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244
United States

Mehrdad Samadi

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jonathan Sokobin (Contact Author)

FINRA ( email )

1735 K Street NW
Washington, DC 20006-1506
United States
(202) 728-8248 (Phone)
(301) 527-4809 (Fax)

Kumar Venkataraman

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-7005 (Phone)
214-768-4099 (Fax)

HOME PAGE: http://people.smu.edu/kumar/

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