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Smart Order Routing, Venue Selection, and MPID Attribution

Article Quant Q&A · Author: Jean-Paul
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Summary

The document addresses whether a broker is likely to execute a trader’s buy and sell orders on the same venue, and whether displayed orders can be traced to a broker through a Market Participant ID. It explains that venue selection depends on the smart order router. A router may favor venues offering higher rebates, which can create a correlation between executions on the same venue, though the first execution does not itself cause the next one to occur there.

MPID attribution is also described as dependent on the router and venue. Firms may choose whether to attribute orders on a venue such as Nasdaq, while executions reported through an ATS or other FINRA reporting participant may show that participant’s MPID and provide only indirect identification. The response mentions venue incentives for attributed orders and suggests asking a broker about its routing practices. It gives no probabilities, broker-specific data, or general rule for predicting venue choice.

Key ideas

  • The smart order router determines which venue receives an order, so repeat executions at one venue depend on its routing preferences.
  • Rebate incentives can help explain correlated venue choices across passive orders.
  • A venue correlation does not mean that the first execution causes a later order to route to the same place.
  • Whether an order is displayed under a broker’s MPID depends on the firm’s attribution choices and routing path.
  • ATS reporting may expose the ATS participant’s MPID without revealing the underlying broker directly.

Tags

EquitiesExecutionMarket microstructure
Full text
# Order routing: correlation of having same exchange for buy and sell


# Order routing: correlation of having same exchange for buy and sell












I am not familiar with the technicalities of order routing so my main sources of information as of now is the sec gov trade execution info and an explanation of how SOR works.

Question 1:

> Let's say I buy shares of a stock through my broker account with a limit order. The broker will then automatically fill my order upon the stock price hitting my limit. For this fill, the broker uses exchange A. Two hours later I decide to sell my shares. Again, I use a limit order. Now what is the chance that my order will be filled at exchange A again?

Or in other words: is there any correlation between where a certain broker fills its shares. Are there any geographical biases or noticeable partnerships involved in order routing?

Relating to this are the `MPID` fields that can be found on Level II depth-of-book views:

Here the various limit orders have a corresponding `Market Participant ID`. These represent the names of market makers.

Question 2:

> If I place an order at my broker A, will this order show up under a fixed MPID on Level II?

Or in other words: can quoted limit orders on the book be tracked to their respective brokers?

## Answer by madilyn (score 1, accepted)

https://quant.stackexchange.com/a/17430

It depends on the smart order router that you've chosen.

Generally no. However in your example it appears that you are referring to passive execution on both ends, and there are smart order routers that preference the highest rebate, in which case you might find high correlation - note this doesn't mean that the venue where the entry leg is executed causes the exit leg to be more likely to execute at the same venue, but rather that there is such co-occurring explanatory variable.

For the second part of your question, it depends on the SOR again.

It is generally optional for a firm to attribute an order to its MPID (say, on NASDAQ). Moreover, your order may routed to and executed "over-the-counter" within a FINRA TRF reporting participant, e.g. an ATS (commonly referred to as a 'dark pool'), in which case the ATS MPID would be submitted, which still somewhat anonymizes your order.

However, Direct Edge does offer an incentive for attributed orders. For whatever reason, your SOR may preference this incentive. I would ask your broker for complete due diligence.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.