Institutional Order Handling and Broker-Affiliated Trading Venues
44 Pages Posted: 11 Mar 2019 Last revised: 20 May 2019
Date Written: May 15, 2019
Using detailed order handling data over the life of 350 million institutional orders, we study whether order routing by brokers to Alternative Trading Systems (ATSs) that they own affects execution quality. In regressions that account for stock characteristics, order attributes and market conditions, orders handled by brokers with high affiliated ATS routing are associated with lower fill rates and higher implementation shortfall (trading) costs. Similar results are obtained for “not-held” orders, large institutional orders and matched samples that account for client intentions. Our results suggest that improved disclosures on order handling could help institutions with broker selection.
Keywords: Broker; ATS; Dark Pool; Trading Cost; Liquidity; Order Handling; Best Execution; Agency
JEL Classification: G10; G20
Suggested Citation: Suggested Citation