Why Nasdaq ITCH Orders Reveal Liquidity Provider Identities
Summary
Nasdaq ITCH distinguishes attributed orders, which include a market participant identifier, from non-attributed orders. The discussion explains why a firm might choose to reveal its identity: venues may offer rebates or program eligibility, and a broker may expect an order to execute more readily if other traders infer it has low adverse-selection risk.
The evidence is a historical snapshot of MPIDs in one day’s feed and the share of added orders carrying attribution, about 3.7%. The answer also notes that incentives vary by venue and time: Direct Edge had an attribution incentive, while the author believed Nasdaq did not have a current price-list incentive at the time. The example is limited to a single historical day, and the post does not establish current venue rules or prove that disclosure improves execution. Attribution therefore involves weighing possible incentives against the risk of revealing order origin.
Key ideas
- ITCH uses attributed and non-attributed order messages, with MPIDs identifying the participant for attributed orders.
- Venues may encourage disclosure through rebates or qualification for trading programs.
- A broker may disclose an order if doing so is expected to improve its chance of execution.
- The cited historical feed showed attribution on about 3.7% of added orders that day.
- Incentives and disclosure tradeoffs depend on venue rules and market conditions.
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Full text
# Disclosure of the liquidity provider identity in ITCH # Disclosure of the liquidity provider identity in ITCH If you look into the description of Nasdaq ITCH data, you see two types of order entries in the book: Message of Type A and F. Under type F, you will see the identity of the market participant (MPID). In other words, you know the firm that supplies liquidity. Why liquidity providers may disclose their identity? What are their motivation to do so? Do they get a higher maker fee? ## Answer by Louis Marascio (score 4) https://quant.stackexchange.com/a/10014 The two types of orders are called "Attributed" and "Non-Attributed". Venues will sometimes provide incentives to encourage order attribution. For example, Direct Edge has their "Edge Attribution Incentive Program" which you can read about on their price list. I believe NASDAQ has offered incentives for attribution in the past, but I don't think they do with their current price list. Attribution is used, but I wouldn't say it is wide spread. For example, here is the list of MPIDs that show up in the NASDAQ ITCH feed on 2013-02-06 (A random date I snagged from our data store. Also, ignore `tzero`.) ``` MPID TABLE - 160 tzero CDRG CANT SBSH BOOK ADAM FLTL SALI WEDB CKCC ROTH RILY KING MWRI DOWL MSRO GLBL EURP RWPC RHCO PRCO JANY NORT CHLM SOHO AVON SUSQ PIPR MSCO ATDF MAXM FBCO OTAA TMBR ETMM FBRC BTIG WCHV IMCC CRTC JPMS GSCO TRIM RAJA BARD COWN RBCM HBIF NITP NEED VERT LEHM NITE PERT STFL SUFI XGWD JEFF MLCO UBSS VFIN BMOC DRWS JSSF VNDM MURF WBLR OPCO KBWI KELL PACS DADA DBAB MERI WABR BERN LAZA PUMA BBNT BMUR DRCO STXG KEYB SDLR BKMM SUNR OCTG INTL MZHO BOSC KOSE DOTC RONI BNKS AABA LEER INET JPTC LTCO NTFN SPHN MONR BRUT CWCO IMPC PAUL WDCO EGRO SMHI BARR WUND COWL FANC TEJS LAFC FUND AXGP ALPS NOBL MACQ ROBT BMAK DLNY AGIS DAIN MICA BKRT FSWC ASCM GRST PERS SWEN CCMB CSTI NQRE TRWN PENA HAMR SSGI GLEN ACAP VRTU NQPM BNCH TRLN NATL WBRO PMCI CFGN BCAP TOOL AFCO COWX AUTO GUGS GFIS MBAY VIRT NQMO CEMM ``` Finally, there might be some requirement to attribute your orders if you participate in NASDAQ's QMM or DLP program. You might check the detailed descriptions to see if there is. Ultimately, a firm is only going to attribute their order if (a) there is no downside to doing so; or (b) the upside, i.e. additional rebate or qualification, is significantly large to negate the downside. ADDED: To expand on the above. If you look at the message statistics for the same day, 2013-02-06, you see the following for adding new orders: ``` ADD ORDER : 92532210 ADD ORDER MPID : 3389849 <<--- this one is the attributed order ``` So you're looking at about a $3.7\%$ attribution rate for orders on this particular day. ## Answer by Kipp Rogers (score 2) https://quant.stackexchange.com/a/16652 My blog discusses this at length: https://mechanicalmarkets.wordpress.com/2015/02/16/protecting-client-interests-anonymity-in-us-equities/ . To quickly summarize, as Louis Marascio said, DirectEdge pays brokers to disclose their MPID. Another possible incentive is the broker trying to maximize their order's chance of execution; if by disclosing their MPID the market is alerted to an order having particularly low-alpha, then that order will be more likely to execute.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.