The Retail Execution Quality Landscape

Fisher College of Business Working Paper No. 2022-03-014

Charles A. Dice Working Paper No. 2022-14

63 Pages Posted: 27 Dec 2022 Last revised: 22 Dec 2023

See all articles by Anne Haubo Dyhrberg

Anne Haubo Dyhrberg

Wilfrid Laurier University - Lazaridis School of Business and Economics

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics

Ingrid M. Werner

The Ohio State University - Fisher College of Business

Date Written: December 10, 2022

Abstract

We show that off-exchange (wholesaler) executions provide significant trading cost savings to retail investors. Despite industry concentration, three findings suggest that wholesalers do not abuse market power. First, brokers closely monitor and reward wholesalers offering low liquidity costs with more order flow. Second, the largest wholesalers offer the lowest costs due to economies of scale. Finally, the entry of a new large wholesaler does not reduce liquidity costs. Drawing from these insights, we discuss the implications of two proposed alternatives to the status quo: (i) pooling retail and institutional flows on exchanges and (ii) sending retail flow to order-by-order auctions.

Keywords: Retail Trading, Wholesalers, Execution Quality

JEL Classification: G20; G24; G28

Suggested Citation

Dyhrberg, Anne Haubo and Shkilko, Andriy and Werner, Ingrid M., The Retail Execution Quality Landscape (December 10, 2022). Fisher College of Business Working Paper No. 2022-03-014, Charles A. Dice Working Paper No. 2022-14, Available at SSRN: https://ssrn.com/abstract=4313095 or http://dx.doi.org/10.2139/ssrn.4313095

Anne Haubo Dyhrberg

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

75 University Ave W
waterloo, ontario N2L 3C5
Canada

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

LH 4050
75 University Ave. W.
Waterloo, Ontario N2L3C5
Canada
519.884.0710 ext. 2462 (Phone)
519.884.0201 (Fax)

Ingrid M. Werner (Contact Author)

The Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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