Direct access order routing after the display rules

What the display rules put on the book

Quote display rules required better bids and offers on smaller orders to be shown rather than kept off the public book. Those display requirements were described as tightening spreads and giving smaller orders access to prices that had previously been reserved for a narrower institutional venue.

Withholding a customer limit order that would have narrowed the spread was presented as a central plumbing failure of the older dealer process.

Where shown limit orders were said to go

After market makers could no longer hide superior retail limit orders, those orders were described as flowing into electronic matching venues and helping those venues build visible liquidity. Those venues could take the form of an electronic communications network, which could display and execute orders outside a traditional dealer book.

Direct access and the routing choice

Direct access trading was framed as giving the trader control of the entire process from the trading decision through order routing. That framing made equipment, bandwidth, and operator skill part of execution quality.

Orders sent through older public routing channels were described as often too slow in fast markets and as tending not to appear on Level II displays, reducing the trader's view of working interest.

The same access reforms were said to leave a second execution risk. Affiliation with a weak routing broker could undo the benefit of being able to place market orders and limit orders oneself.