Institutional Order Handling and Broker-Affiliated Trading Venues

Amber Anand, Whitman School of Management
Mehrdad Samadi, Finance Department
Jonathan S. Sokobin, Securities and Exchange Commission (SEC)
Kumar Venkataraman, Finance Department


Using detailed order handling data over the life of 330 million institutional orders, we study whether order routing by brokers to Alternative Trading Systems (ATSs) that they own affects execution quality. In a multivariate regression specification that controls for stock attributes, order characteristics and market conditions, orders handled by brokers with high affiliated ATS routing are associated with lower fill rates. Trading costs based on the implementation shortfall approach are higher when clients select a broker with high affiliated ATS routing. Broker outcomes are highly persistent suggesting that improved disclosures on order handling could help institutional clients with broker selection.