Institutional Order Handling and Broker-Affiliated Trading Venues

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: 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