Does payment for order flow happen on non-OTC stock markets?
Does payment for order flow happen on non-OTC stock markets?
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Kmd · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: Kmd
Original post: https://quant.stackexchange.com/questions/69948
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I thought since brokers on non-OTC market have obligation to get its customers best execution price, it’s meaningless for dealers(market maker) to pay brokers for the order flow for dealers to make “spread profit” from. Because even if a dealer pays brokers for the order flow, if he isn’t the one quoting the best prices, he won’t get the orders anyway. Isn’t it true?
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tom · External communityPost link
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Author: tom
Original post: https://quant.stackexchange.com/a/69957
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Best execution does not mean best execution on every trade. In addition delays and weaknesses in calculating the NBBO (National Best Bid and Offer), delays in transmission speeds for limit orders from mobile aps and execution rules for odd-lot trades all impact execution to the detriment of the investor.
Read below one simple example of why your statement above is incorrect
https://www.marketwatch.com/story/commission-free-stock-market-trading-on-some-platforms-may-be-raising-costs-and-volatility-for-all-of-us-11645017928
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Brian B · External communityPost link
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Author: Brian B
Original post: https://quant.stackexchange.com/a/79988
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When payment for order flow happens, a proportion of the orders never make it to
any
market, OTC or "lit".
As @tom (upvoted) says, "best" execution can have more than one meeting. From a regulatory point of view, Citadel and Virtu are in the clear when they fill incoming buy orders at prices less than the national best offer (and vice versa for sell orders).
So, when they think an order is "juicy", they fill it at a price a fraction of a penny better than the national best.
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Quoted from Forex.com.bd-Editorial External answer — Quantitative Finance Stack Exchange Author: tom Source score (net votes, not local likes): 1 Original post: https://quant.stackexchange.com/a/69957 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Best execution does not mean best execution on every trade. In addition delays and weaknesses in calculating the NBBO (National Best Bid and Offer), delays in transmission speeds for limit orders from mobile aps and execution rules for odd-lot trades all impact execution to the detriment of the investor. Read below one simple example of why your statement above is incorrect https://www.marketwatch.com/story/commission-free-stock-market-trading-on-some-platforms-may-be-raising-costs-and-volatility-for-all-of-us-11645017928
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