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2011issue C0636-38

Smart order routing, maker-taker, and midpoint execution costs

Venue choice after a displayed quote is selected can change the cash cost of the same 1,000-share take, because exchange access fees sit on top of brokerage commissions. Midpoint pings, rebate destinations, and last-resort takes belong in that sequence.

  • Venue choice after a quote is selected can change the cash cost of the same 1,000-share take, because exchange access fees sit on top of brokerage commissions.
  • A displayed take of 1,000 shares at 20.30 can carry a 2.10 venue fee, while a midpoint fill at 20.295 can replace that fee with about 5 dollars of price improvement, a 7.10 swing on that ticket.
  • A random sample of one liquid name filled at the midpoint on about 20 percent of attempts, so the half-penny is not guaranteed on every ping.
  • A smart router can send immediate-or-cancel pings to midpoint and rebate venues before any last-resort take destination, and can park remainder size where a rest rebate is paid.
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Current trackOrder routing65 readings

The fill includes the venue

Order-routing is choosing the sequence of venues an order visits during its life so that displayed quotes, hidden midpoint interest, and venue fees are part of the execution decision.

Venue choice after a quote is selected can change the cash cost of the same 1,000-share take, because exchange access fees sit on top of brokerage commissions.

A displayed take of 1,000 shares at 20.30 can carry a 2.10 venue fee, or 21 cents per hundred shares, in addition to the broker ticket. At 40 such 1,000-share takes in a day, those venue take fees can total about 84 dollars before any other trading costs.

Midpoint pings and the displayed book

Routing first to a midpoint pool can fill 1,000 shares at 20.295 instead of 20.30, replacing a 2.10 take fee with about 5 dollars of price improvement, a 7.10 swing on that ticket.

A random sample of one liquid name filled at the midpoint on about 20 percent of attempts, so the half-penny is not guaranteed on every ping.

Checking hidden midpoint interest first can miss a displayed quote, and heavy dark volume can weaken the displayed book that other venues use as a reference.

Rebate books and last-resort takes

Maker-taker inverted when take fees and flash or subpenny flow made resting bids less likely to be hit, so some traders paid a small take fee to stand first at a limit.

A smart router can send immediate-or-cancel pings to midpoint and rebate venues before any last-resort take destination, and can park remainder size where a rest rebate is paid.

Missing midpoint and filling instead on a rebate venue rather than a 2.10 take can save about 3.60 on 1,000 shares. Parking on a rebate book versus that take can save about 4.10.

Savings versus a NYSE take on 1,000 shares of GE

After a displayed quote is chosen, the same 1,000-share GE fill does not have one cash cost. Bright’s 2011 walkthrough states that a midpoint ping saves $7.10 versus paying the NYSE $2.10 take fee, a resting order on Arca saves $4.10, and a take on Nasdaq Boston (NQBX) saves $3.60 because that inverse book pays a $1.40 rebate instead of charging the take. Those three savings figures are taken from the article’s routing examples.
After a displayed quote is chosen, the same 1,000-share GE fill does not have one cash cost. Bright’s 2011 walkthrough states that a midpoint ping saves $7.10 versus paying the NYSE $2.10 take fee, a resting order on Arca saves $4.10, and a take on Nasdaq Boston (NQBX) saves $3.60 because that inverse book pays a $1.40 rebate instead of charging the take. Those three savings figures are taken from the article’s routing examples.GE

Posted access fees vary by volume tier and whether a retail ticket already bundles them. Bright’s GE sample filled at midpoint only about 20% of the time, so the $7.10 bar is the successful ping, not an average fill.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
6 of 30 in the Order routing track
201272-72 pp.Next on Order routingCompare equivalent listings before routingThe same or similar products can sit on more than one marketplace, so a trader may have more than one book for a given instrument.
All readings on this track · 30 readings
  1. 1988Why instant basket routing overwhelms specialist liquidity
  2. 2004Retail forex tickets as implementation-cost contracts
  3. 2005A two-gate liquidity filter for futures order routing
  4. 2006Manual after-hours routing and open-outcry fill risk
  5. 2010A futures brokerage quote is an execution specification
  6. 2011Smart order routing, maker-taker, and midpoint execution costs
  7. 2012Compare equivalent listings before routing
  8. 2012Rebate-aware routing and execution cost
  9. 2012Platform routing, fees, and server-side stops
  10. 2013Compare equivalent listings, then route the order
  11. 2013Confirm routing, margin, and fill cost before a live forex order
  12. 2013Brokerage choice as an execution-cost and routing filter
  13. 2014Order routing, pass-through rebates, and liquidity choice
  14. 2014Comparing exchange venues before routing the order
  15. 2014Selecting a futures broker as an execution-architecture problem
  16. 2014Commission shopping is the wrong first filter for a futures order
  17. 2015Routing orders when equivalent products trade on multiple venues
  18. 2015Forex venue checks for speed, margin, and implementation cost
  19. 2015Backup venues and symbol splits in futures routing
  20. 2016Route orders across competing exchange venues
  21. 2016Filter exchange venues before routing orders
  22. 2017Venue choice as an order-routing filter
  23. 2017Venue routing for equivalent listed contracts
  24. 2017Forex broker checks for fill speed, quote honor, and margin
  25. 2017Brokerage choice as an execution-speed and commission filter
  26. 2018Routing equivalent contracts across competing venues
  27. 2018Forex venue selection by fill speed, margin terms, and price honor
  28. 2019Forex execution filters for routing, cost, and liquidity
  29. 2020Routing equivalent listings across competing exchanges
  30. 2020Brokerage filters for routing, commissions, and liquidity
By fieldOrder types and routing87 readingsBy year2011131 readings
All 65 readings tagged Order routing
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