Arbeitspapier
Broker routing decisions in limit order markets
The primary focus of this paper is to study conflict of interest in the brokerage market. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues. I construct a model of limit order trading in which brokers serve as agents for investors who wish to access equity markets. I find that brokers preferentially route marketable orders to venues with lower liquidity demand fees, driving up the execution probability at these venues and lowering adverse selection costs. When fees for liquidity supply and demand are sufficiently different, brokers route liquidity supplying orders to separate venues, where investors suffer from lower execution probability and higher costs of adverse selection.
- Language
-
Englisch
- Bibliographic citation
-
Series: Bank of Canada Staff Working Paper ; No. 2016-50
- Classification
-
Wirtschaft
Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
Financial Institutions and Services: Government Policy and Regulation
- Subject
-
Financial markets
Market structure and pricing
- Event
-
Geistige Schöpfung
- (who)
-
Cimon, David A.
- Event
-
Veröffentlichung
- (who)
-
Bank of Canada
- (where)
-
Ottawa
- (when)
-
2016
- DOI
-
doi:10.34989/swp-2016-50
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Cimon, David A.
- Bank of Canada
Time of origin
- 2016
Other Objects (12)
Sovereign default risk premia, fiscal limits and fiscal policy
Measuring limits of Arbitrage in fixed-income markets
Limits to arbitrage and deviations from covered interest rate parity
Order aggressiveness and quantity: How are they determinted in a limit order market?
Using speed and credit limits to address the procyclicality of initial margin at central counterparties
What to do about bilateral credit limits in the LVTS when a closure is anticipated: Risk versus liquidity sharing among LVTS participants
Identifying asymmetric comovements of international stock market returns
On the existence and fragility of repo markets
Sterilized intervention in emerging-market economies: Trends, costs, and risks
Targeting Inflation from Below - How Do Inflation Expectations Behave?
Revisiting National Border Effects in Foreign Trade in Goods of Canadian Provinces
Optimal monetary policy during endogenous housing-market boom-bust cycles
Sovereign default risk premia, fiscal limits and fiscal policy
Measuring limits of Arbitrage in fixed-income markets
Limits to arbitrage and deviations from covered interest rate parity
Order aggressiveness and quantity: How are they determinted in a limit order market?
Using speed and credit limits to address the procyclicality of initial margin at central counterparties
What to do about bilateral credit limits in the LVTS when a closure is anticipated: Risk versus liquidity sharing among LVTS participants
Identifying asymmetric comovements of international stock market returns
On the existence and fragility of repo markets
Sterilized intervention in emerging-market economies: Trends, costs, and risks
Targeting Inflation from Below - How Do Inflation Expectations Behave?
Revisiting National Border Effects in Foreign Trade in Goods of Canadian Provinces
Optimal monetary policy during endogenous housing-market boom-bust cycles
Sovereign default risk premia, fiscal limits and fiscal policy
Measuring limits of Arbitrage in fixed-income markets
Limits to arbitrage and deviations from covered interest rate parity
Order aggressiveness and quantity: How are they determinted in a limit order market?
Using speed and credit limits to address the procyclicality of initial margin at central counterparties
What to do about bilateral credit limits in the LVTS when a closure is anticipated: Risk versus liquidity sharing among LVTS participants
Identifying asymmetric comovements of international stock market returns
On the existence and fragility of repo markets
Sterilized intervention in emerging-market economies: Trends, costs, and risks
Targeting Inflation from Below - How Do Inflation Expectations Behave?
Revisiting National Border Effects in Foreign Trade in Goods of Canadian Provinces