Public Disclosure and Private Decisions: Equity Market Execution Quality and Order Routing

Abstract

In 2001, the Securities and Exchange Commission (SEC) required market centers to publish monthly execution-quality reports in an effort to spur competition for order flow between markets. Using samples of stocks trading on several markets, we investigate whether past execution quality affects order-routing decisions and whether the new disclosure requirements influence this relationship. We find that routing decisions are associated with execution quality; markets reporting low execution costs and fast fills subsequently receive more orders. Moreover, the reports themselves appear to provide information that was unavailable previously. Our results are consistent with active competition for order flow that can be influenced by public disclosure. (JEL G24, G28, K22)The U.S. Securities and Exchange Commission (SEC) frequently relies on public disclosure to achieve policy objectives. In defining themselves, the Commission states that, ''. . . the SEC is concerned primarily with promoting disclosure of important information, enforcing the security laws, and protecting investors . . .'' 1 A theme appearing repeatedly in SEC activities is that well-informed individuals make decisions enhancing security-market efficiency. Recently enacted SEC Rule 11Ac1-5 illustrates this approach. Equity-market trades frequently occur at prices other than those quoted, but brokers/traders find it difficult to anticipate We thank an anonymous referee,

Does Payment For Order Flow To Your Broker Help Or Hurt You?

“…The intuition is that brokers like Charles Schwab face competitive pressures to route orders to low-cost or fast execution venues. Thus, the conclusion from the Boehmer, Jennings, and Wei (2006) study is that competitive pressures lead to savings for investors.…”

Spoilt for Choice: Order Routing Decisions in Fragmented Equity Markets

“…Empirical evidence provided by Madhavan and Cheng (1997) and Booth et al (2002) suggests that adverse selection costs are indeed lower in the upstairs market. Boehmer et al (2007), Menkveld et al (2016), and Degryse et al (2016) examine traders' order routing choices to alternative trading mechanisms. Boehmer et al (2007) find that publication of monthly execution reports by exchanges, Electronic Communication Networks (ECN), and NASDAQ dealers affects the subsequent order flow routed to these venues.…”

“…Boehmer et al (2007), Menkveld et al (2016), and Degryse et al (2016) examine traders' order routing choices to alternative trading mechanisms. Boehmer et al (2007) find that publication of monthly execution reports by exchanges, Electronic Communication Networks (ECN), and NASDAQ dealers affects the subsequent order flow routed to these venues. In a study contemporaneous to ours, Menkveld et al (2016) document a pecking order in terms of trading costs and immediacy determining traders' intraday order routing decisions to different lit and dark venues in the US.…”

“…We focus on the impact of the different protocols employed by these markets on their market shares. Our empirical approach is similar to Boehmer et al (2007) who examine the impact of SEC-mandated execution quality reports published by market centers on traders' order-routing decisions.…”

MiFID: Eine systematische Analyse der Zielerreichung

“…schiede in den Ergebnissen erfüllt jede dieser Handelsstrategien die MiFID-Anforderungen der Best Execution, die im folgenden Unterkapitel analysiert wird. Cumming et al (2011aCumming et al ( & 2011b Boehmer et al (2007) haben für die USA empirisch nachgewiesen, dass Marktplätze, die geringe Handelskosten und schnelle Ausführungszeiten berichten, in den folgenden Monaten ein höheres Auftragsvolumen aufweisen. 87 Vgl.…”