@article{b0e7e38ffdd0420c8e5df2b1f7259315,
title = "Refusing the best price?",
abstract = "The Regulation National Market System (Reg NMS) links fragmented stock exchanges by routing orders to the National Best Bid and Offer (NBBO). As the NBBO ignores exchange fees, 62% of routings lead to worse net prices. An increase in fee differences increases the market share captured by orders that refuse Reg NMS routings, particularly for stocks whose fees account for a large portion of transaction costs. Heterogeneous opportunity costs rationalize routing choices: non-routable orders entail lower non-execution costs than routable orders. Our results indicate that fees and clientele segmentation drive the proliferation of order types in the Reg NMS era.",
keywords = "High-frequency trading, Make/take fees, Order types, Regulation NMS, Routing",
author = "Sida Li and Mao Ye and Miles Zheng",
note = "Funding Information: Nikolai Roussanov was the editor for this article. We thank Jim Angel, Dan Bernhardt, Ekkehart Boehmer, Eric Bryce, Colin Clark, Carole Comerton-Forde, Nicolas Crouzet, Ian Dew-Becker, Thomas Ernst, Harry Feng, Thierry Foucault, Joel Hasbrouck, Edwin Hu, Pankaj Jain, Phil Mackintosh, Albert Menkveld, Bruce Mizrach, Dermot Murphy, Maureen O'Hara, Marios Panayides, Steven Poser, Andriy Shkilko, Jeffery Smith, Elvira Sojli, Chester Spatt, Jeremy Stein, Kumar Venkataraman, Sunil Wahal, Chen Yao, and seminar participants at Louisiana State University, the New York Stock Exchange, Stockholm Business School, the University of Illinois at Urbana-Champaign, Rutgers University, the Citadel, Two Sigma Investments, AFA 2021, the 3rd Future of Financial Information Conference, CICF 2021, EFA 2021, NFA 2021, SFS 2022, and Microstructure Online Seminars Asia Pacific for helpful discussions and suggestions. We thank the New York Stock Exchange for providing us with their proprietary data for this paper. Ye acknowledges support from National Science Foundation grant 1,838,183 and the Extreme Science and Engineering Discovery Environment (XSEDE). Funding Information: Nikolai Roussanov was the editor for this article. We thank Jim Angel, Dan Bernhardt, Ekkehart Boehmer, Eric Bryce, Colin Clark, Carole Comerton-Forde, Nicolas Crouzet, Ian Dew-Becker, Thomas Ernst, Harry Feng, Thierry Foucault, Joel Hasbrouck, Edwin Hu, Pankaj Jain, Phil Mackintosh, Albert Menkveld, Bruce Mizrach, Dermot Murphy, Maureen O'Hara, Marios Panayides, Steven Poser, Andriy Shkilko, Jeffery Smith, Elvira Sojli, Chester Spatt, Jeremy Stein, Kumar Venkataraman, Sunil Wahal, Chen Yao, and seminar participants at Louisiana State University, the New York Stock Exchange, Stockholm Business School, the University of Illinois at Urbana-Champaign, Rutgers University, the Citadel, Two Sigma Investments, AFA 2021, the 3rd Future of Financial Information Conference, CICF 2021, EFA 2021, NFA 2021, SFS 2022, and Microstructure Online Seminars Asia Pacific for helpful discussions and suggestions. We thank the New York Stock Exchange for providing us with their proprietary data for this paper. Ye acknowledges support from National Science Foundation grant 1,838,183 and the Extreme Science and Engineering Discovery Environment (XSEDE). Publisher Copyright: {\textcopyright} 2022 Elsevier B.V.",
year = "2023",
month = feb,
doi = "10.1016/j.jfineco.2022.11.004",
language = "English (US)",
volume = "147",
pages = "317--337",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "2",
}