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> Retail brokers typically route orders to a handful of market makers, allocating more to the market makers that provide the highest amount of price improvement
by FabHK 5y ago
> Retail brokers typically route orders to a handful of market makers, allocating more to the market makers that provide the highest amount of price improvement to the retail investors.
Do they? Or would they typically allocate more to the market makers that pay them the largest kick-back ("payment for order flow")? (Not that that is inherently wrong, but it is not quite as benign for the consumer as what a16z portrays it there.)
- totalZero 5y agoThey're obligated by the regulators to ensure best execution, which typically means they have to do statistical analysis of the execution quality. Routing an order away doesn't absolve them of this requirement. However, they have a business incentive to optimize for the greatest kickback. So it's a question of ethics. And those are sometimes in short supply in the financial industry.