Snowbirds in Securities Trading: Canadian Brokers' U.S.-Bound Order Routing

42 Pages Posted: 4 Mar 2020

See all articles by Katya Malinova

Katya Malinova

McMaster University - Michael G. DeGroote School of Business

Andreas Park

University of Toronto - Finance Area

Date Written: January 14, 2019

Abstract

We study a unique data set of all client trades that the six largest Canadian dealers sent to U.S. equity markets in 2014-2015. Contrary to the public perception, Canadian dealers use U.S. markets only lightly and send less than 5% of their $-volume to the U.S.; on 60% of security-day observations, they send no order flow to the U.S. Usage of U.S. markets differs significantly among the dealers: one uses almost exclusively exchanges, but most trade only off-exchange, in so-called dark markets or directly with other dealers. A strong factor that influences the U.S.-bound routing decision is a broker's volume: the larger the volume, the more likely it is that the broker uses U.S. markets. Overall, the data indicate that brokers' U.S.-bound routing decisions are driven by the size of client order flow which requires access to the additional liquidity offered by U.S. markets. For a 3-month period, one dealer made extensive use of U.S. wholesalers, and we find no evidence for a negative impact on the trading costs for its Canadian flow.

Keywords: cross-listed securities, cross-market trading, microstructure

JEL Classification: G14

Suggested Citation

Malinova, Katya and Park, Andreas, Snowbirds in Securities Trading: Canadian Brokers' U.S.-Bound Order Routing (January 14, 2019). Available at SSRN: https://ssrn.com/abstract=3534365 or http://dx.doi.org/10.2139/ssrn.3534365

Katya Malinova

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Andreas Park (Contact Author)

University of Toronto - Finance Area ( email )

Toronto, Ontario M5S 3E6
Canada

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