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Can Brokers Have It All? On the Relation between Make-Take Fees and Limit Order Execution Quality

The Journal of finance (New York), 2016-10, Vol.71 (5), p.2193-2238 [Peer Reviewed Journal]

2016 American Finance Association ;2016 the American Finance Association ;Copyright Blackwell Publishers Inc. Oct 2016 ;ISSN: 0022-1082 ;EISSN: 1540-6261 ;DOI: 10.1111/jofi.12422 ;CODEN: JLFIAN

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  • Title:
    Can Brokers Have It All? On the Relation between Make-Take Fees and Limit Order Execution Quality
  • Author: BATTALIO, ROBERT ; CORWIN, SHANE A. ; JENNINGS, ROBERT
  • Subjects: Brokers ; Fees ; Horses ; Investors ; Limit orders ; Liquidity ; Market orders ; Payments ; Prices ; Rebates ; Sales rebates ; Stock exchanges ; Stockbrokers ; Studies ; Trade
  • Is Part Of: The Journal of finance (New York), 2016-10, Vol.71 (5), p.2193-2238
  • Description: We identify retail brokers that seemingly route orders to maximize order flow payments, by selling market orders and sending limit orders to venues paying large liquidity rebates. Angel, Harris, and Spatt argue that such routing may not always be in customers' best interests. For both proprietary limit order data and a broad sample of trades from TAQ, we document a negative relation between several measures of limit order execution quality and rebate/fee level. This finding suggests that order routing designed to maximize liquidity rebates does not maximize limit order execution quality and thus brokers cannot have it all.
  • Publisher: Cambridge: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0022-1082
    EISSN: 1540-6261
    DOI: 10.1111/jofi.12422
    CODEN: JLFIAN
  • Source: Alma/SFX Local Collection
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