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2011issue C0131

Routing fees, do-not-ship flags, and maker-taker limit orders

A limit sent to one exchange can be shipped to a better-priced venue, held with a do-not-ship flag, or executed as an immediate take. Each path carries a different implementation cost.

  • When a limit is sent to one exchange at a price inferior to the national best bid and offer on another market center, national-market-system rules can require that venue to route the order onward, and that shipping often carries a per-share routing fee of about three-tenths of a penny.
  • A do-not-ship designation can block that extra outbound routing, but it also forgoes automatic access to a better displayed away price.
  • Providing liquidity with a resting limit typically earns a rebate, while taking liquidity typically incurs a take fee, with a common maker-taker rule of thumb around the period near $0.002 to provide and $0.003 to take.
  • Flash orders and subpennying can leave a displayed limit unfilled while trades occur a fraction of a cent ahead of it, which weakens the incentive to post and leave resting limits.
Entries in this reading3 entries
Current trackLimit order51 readingsOrder routing65 readingsCommission analysis83 readings

An editorial reading of the charges

Editorial: treat routing, shipping, and maker-taker charges as order-design choices rather than invoice noise. A resting limit, a do-not-ship flag, and an immediate take each buy a different fill path and a different implementation cost.

Outbound shipping and the routing fee

When a limit order is sent to one exchange at a price inferior to the national best bid and offer on another market center, national-market-system rules can require that exchange to route the order to the better-priced venue.

That outbound shipping or rerouting often carries a per-share routing fee of about three-tenths of a penny, which compounds across active order flow.

The do-not-ship choice

A do-not-ship designation can block that extra outbound routing, but it also forgoes automatic access to a better displayed away price.

Shipping is economically justified only when the price improvement is a full penny relative to a much smaller routing charge.

Maker-taker fees on provide and take

Resting a limit that is later executed is providing liquidity and typically earns a liquidity rebate. Immediately hitting a bid or lifting an offer is taking liquidity and typically incurs a take fee.

A common maker-taker rule of thumb around the period paid about $0.002 per share for providing liquidity and charged about $0.003 for taking it.

Flash orders and subpennying

Flash orders give a brief, non-displayed look at an incoming order before it is routed or posted. Subpennying can print or display a fraction of a cent ahead of a resting limit. Either can leave that displayed limit unfilled while trades occur a fraction of a cent ahead of it, weakening the incentive to post and leave resting limits.

Arguments that flash mechanisms save money by avoiding venues with taker fees omit the market-quality costs of less transparent, less competitive quoting.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
12 of 20 in the Limit order track
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All readings on this track · 20 readings
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  2. 1996Index spread pairs with seasonal filters and limit orders
  3. 2003Precommit the stop and limit after a rule-based entry
  4. 2005Limit orders, routing paths, and commission tradeoffs
  5. 2005Bracket orders that precommit stop and target exits
  6. 2005Precommit a stop-loss at entry with pivot triggers
  7. 2006Mechanical systems need fill-aware failure modes
  8. 2006Ranking near-term support for ETF limit entries
  9. 2007Precommit futures stops and limits with contingent orders
  10. 2007Overnight option limit fills, stops and trailing exits
  11. 2010Seasonal commodity windows and stop-limit fill risk
  12. 2011Routing fees, do-not-ship flags, and maker-taker limit orders
  13. 2011A three-bar inside-bar commodity setup still needs portfolio context
  14. 2012Limit orders when a tick saved costs the fill
  15. 2013Futures platform order entry and per-trade fees
  16. 2013Iceberg hidden size and option-spread packages
  17. 2014Marketable limits, directed venues, and spread filters
  18. 2015Filtering commodity option liquidity by spread, not open interest
  19. 2015Paired range-bar averages and next-bar limit exits
  20. 2019Uneven-wing modidor as one limit package
By fieldOrder types and routing87 readingsBy year2011131 readings
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