Woodbine Associates, Inc.
  Capital Markets Consulting and Research

 

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U.S. Equity Exchange Performance
May, 2012

As much as $5.0 billion is wasted annually in sub-optimal broker routing decisions.  Our report examines the execution quality of marketable limit orders and at-the-quote limit orders on U.S. equity exchanges.  

Stamford, Connecticut, May 7, 2012 -- Woodbine Associates, Inc. (http://www.woodbineassociates.com) announces the release of a new report entitled “U.S. Equity Exchange Performance.”  The report focuses on how exchanges compare in execution quality and information asymmetry associated with basic order types central to price discovery.

"There are differences among exchanges. The the buy-side must look out for themselves, intensively review sell-side order handling, and insist on accountability for sub-optimal routing," said Matt Samelson, principal and author of the report.  "At the same time, the buy-side should be willing to pay higher commissions to brokers that truly provide superior order routing and premium service."
 

The third annually-produced report examines exchange performance in marketable limit orders and at-the-quote limit orders less than 2,000 shares, without special order handling instructions, traded during normal trading sessions, excluding the opening and closing trades.  Marketable limit orders are examined on the basis of execution prices and the degree of post-execution price reversion.  At-the-quote limit orders are examined only on the basis of price reversion.  Orders are examined in the context of capitalization and listing exchange.

"Many orders are not routed to the right venues at the right time for the right reasons," added Samelson.  "When a broker's fiduciary responsibility to a client's execution ends, economics turn toward the broker and away from the client. Pennies earned by brokers may cost principals dollars in execution quality.  It is important that each client knows where their broker's fiduciary responsibility ends."

Among the report's key findings are:
  • As much as $5.0 billion in opportunity cost or “alpha-at-risk” market-wide is wasted through sub-optimal order routing decisions that may save brokers pennies but cost principals dollars.
  • BATS and Direct Edge, automated venues with newer technology, provided superior price quality and a more "balanced" market in certain capitalizations of securities listed at particular exchanges.
  • New York Stock Exchange exhibited distinct improvement in handling it's own orders versus previous years. This year's results suggest top-tier price quality and declining information asymmetry.  We believe that the exchange is developing it's operating model and infrastructure in such a way as to make it a more 'level' playing field.  This positive evolution begins to dispel a less-than-positive anecdotal reputation that has persisted over the years.
  • Nasdaq Stock Exchange displayed superior performance in the execution of Exchange Traded Funds.
  • Amex-listed securities, perhaps due to their small capitalizations and low percentage of traded share volumes exhibited the best overall trading conditions market-wide when compared to Tape A and C securities.
This 75 page report has 4 tables and 61 figures.

For the full executive summary, table of contents, and more information please contact:

Matt Samelson
CEO and Director of Equities
Phone:  203-274-8970 ext 201
Email: msamelson@woodbineassociates.com 


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