Stocks & Commodities V. 29:1 (31): Q&A by Don Bright
Product Description
Q&A by Don Bright
ROUTING AND REROUTING FEES?
Don, I have a question about order routing that perhaps you can help me with. I trade with a respectable brokerage that caters to active traders. I’ve noticed in the last few months that I have been charged fees referring to “routing,” “rerouting,” and electronic communications networks (Ecn) fees. I place my orders to go to the Nyse, as suggested by my peers. I am told that there may be fees for taking of liquidity, and also that I may be entitled to collect rebates for providing of liquidity. I’m not sure what any of this means, but now that I’m being charged fees, I would like to understand it better. When I called the broker, they were very vague about it all, as if they weren’t sure either, but assured me that they were pass-through fees, not add-ons. Can you help? — oldtimeguy
Excellent questions, very timely. Although I can’t speak directly as to how your brokerage handles such electronic orders, I can explain how things work. If you submit a limit order to the Nyse (as you say) to buy Xyz for $20.10, and the Nyse’s best offer is $20.11, but the overall best market (Nbbo, or “national best bid and offer”) is $20.10 on an Ecn “market center” like Arca. The Nms (that is, the National Market System) requires that the Nyse “ship” the order to the better-priced market. That’s great, except the Nyse will likely charge you a fee for “shipping” the order out. These fees are usually about three-tenths of a penny per share, which can add up quickly.
ROUTING AND REROUTING FEES?
Don, I have a question about order routing that perhaps you can help me with. I trade with a respectable brokerage that caters to active traders. I’ve noticed in the last few months that I have been charged fees referring to “routing,” “rerouting,” and electronic communications networks (Ecn) fees. I place my orders to go to the Nyse, as suggested by my peers. I am told that there may be fees for taking of liquidity, and also that I may be entitled to collect rebates for providing of liquidity. I’m not sure what any of this means, but now that I’m being charged fees, I would like to understand it better. When I called the broker, they were very vague about it all, as if they weren’t sure either, but assured me that they were pass-through fees, not add-ons. Can you help? — oldtimeguy
Excellent questions, very timely. Although I can’t speak directly as to how your brokerage handles such electronic orders, I can explain how things work. If you submit a limit order to the Nyse (as you say) to buy Xyz for $20.10, and the Nyse’s best offer is $20.11, but the overall best market (Nbbo, or “national best bid and offer”) is $20.10 on an Ecn “market center” like Arca. The Nms (that is, the National Market System) requires that the Nyse “ship” the order to the better-priced market. That’s great, except the Nyse will likely charge you a fee for “shipping” the order out. These fees are usually about three-tenths of a penny per share, which can add up quickly.
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