Wholesaler Execution Quality
60 Pages Posted: 28 Dec 2022 Last revised: 19 Dec 2023
Date Written: December 18, 2023
Abstract
We obtain all marketable orders routed to one or more wholesaler(s) in May 2022 to examine wholesaler execution quality in isolation and relative to that available on exchanges in similar market conditions. We find substantially better wholesaler execution quality than that documented in SEC mandated Rule 605 reports because we consider short sales and odd lot orders and account for size improvement provided to orders that outsize the depth available at the national best quotes. We conclude with a near neighbor order analysis and find that, on average, wholesaler execution quality is consistently superior to that available on exchanges in similar market conditions – winning/tying 90% of the comparisons.
Keywords: Payment for Order Flow, Execution Quality, Order Routing, Liquidity
JEL Classification: G20, G24, G28
Suggested Citation: Suggested Citation