TRADING TECHNIQUES
Exchanges, ECNs, And Market Centers
Changes in structure cause changes in order routing. And with growth and mergers taking place among exchanges, traders need to be aware of how to route their orders.
Back in the good old days, we just set up orders and clicked buy, sell, or sell short. We didn’t have any concerns about where the orders were going, because it didn’t matter. It didn’t matter because there were basically only two destinations, Nyse and Nasdaq. Of course, we also had Amex and a few regional exchanges, but overall, it didn’t matter because we were not being charged additional fees from alternate destinations.
I recently talked with some of the top people at the various market centers, which is what most destinations prefer to be called these days, and asked about basic order routing these days, with a little historical perspective. Most of this article was written before the Nyse Euronext announced its merger with Deutsche Borse, two of the world’s biggest exchange operators, so I’ll be writing another article altogether about those two.
Overall order routing (from the start)
The Nyse traces its roots back to 1792, when 24 stock brokers signed the Buttonwood Agreement, a document stating that they would trade certain goods only with each other. From that beginning, believe it or not, the Nyse stayed more or less intact for approximately 200 years, growing by leaps and bounds, vowing only to trade to each other in the exchange. Then in 2006, the Arca electronic trading group was brought under the Nyse’s wing, and then in 2007, they merged with Euronext, bringing about the first truly global marketplace. In 2008, they brought the American Stock Exchange (Amex) on board. Along the way, the London International Financial Futures and Options exchange (Liffe) added a new dimension to their futures and options executions.
How do all the mergers and reorganizations in recent years affect the order routing? Here’s where things get interesting. Various firms may have slightly different pricing due to volume tiers and other variables. Some retail firms may include some of these costs in their ticket charges, but many do not.