Splitting and Shuffling: Institutional Trading Motives and Order Submissions Across Brokers

47 Pages Posted: 19 Aug 2019 Last revised: 20 Nov 2019

See all articles by Munhee Han

Munhee Han

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: November 11, 2019

Abstract

This paper studies order submission strategies by institutional investors when trading on private information. By merging institutional daily transactions with original/confidential 13F filings, I separate informed trades from uninformed ones. Informed large orders tend to be split across more brokers and over more days. While same brokers tend to work uninformed large orders over multiple days, the brokers who facilitated early parts of broken-up informed orders rarely receive the remaining parts of the same orders on later days. Institutional investors also provide camouflage for their informed orders by mixing an informed order with other uninformed orders simultaneously sent to the same broker. As a result, a higher degree of shuffling a portfolio of orders is associated with a larger share of informed trading volume. The splitting and shuffling strategies designed to conceal informed trades from brokers and other market participants tend to lower institutional trading costs, especially on informed orders.

Keywords: institutional trading, informed trades, order submissions, brokers, trading costs

Suggested Citation

Han, Munhee, Splitting and Shuffling: Institutional Trading Motives and Order Submissions Across Brokers (November 11, 2019). Available at SSRN: https://ssrn.com/abstract=3429452 or http://dx.doi.org/10.2139/ssrn.3429452

Munhee Han (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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