Premium
Can Brokers Have It All? On the Relation between Make‐Take Fees and Limit Order Execution Quality
Author(s) -
BATTALIO ROBERT,
CORWIN SHANE A.,
JENNINGS ROBERT
Publication year - 2016
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12422
Subject(s) - market liquidity , limit (mathematics) , order (exchange) , order book , quality (philosophy) , relation (database) , payment , business , time limit , computer science , sample (material) , routing (electronic design automation) , operations research , economics , finance , database , computer network , mathematics , management , mathematical analysis , philosophy , chemistry , epistemology , chromatography
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.