Order Routing Under the Microscope


The Healthy Markets Association, an industry organization focused on market transparency and integrity, has released an order-routing due-diligence checklist.

The 200-item questionnaire, which is available to members and non-members, spans issues that include general firm information, technology, order-routing strategies, venue monitoring, conflict and leakage, third-party relationships, as well as treatment of non-directed orders.

“These are very basic questions that could materially impact the quality of service provided by the broker,” said Tyler Gellasch, executive director at the Healthy Market Association.

The association’s staff leveraged the expertise of its buy-side members as well as sell-side and third-party participants in the association’s working groups to generate the questions.

Tyler Gellasch,Healthy Markets

Tyler Gellasch,
Healthy Markets

“At one point, we had more than 500 questions,” said Gellasch. “We took questions from brokers, execution quality experts like Abel Noser, exchanges, and buy-side head traders. They fed us questions, and then we aggregated them, sent draft versions to members, and boiled them down.”

It remains unclear whether Healthy Markets will aggregate the response from the individual questionnaires to provide greater insight into the sell-side practice.

“Our members have not decided it they would want us to do that or if they are going to use what they want and send it out themselves,” he said.

The order-routing questionnaire is the second sell-side oriented questionnaire produced by the industry body since its founding in October 2015.

Healthy Markets developed and released its first questionnaire regarding the operation of alternative trading systems in late 2015.

“It included what every investment advisor should know about ATSes and how their orders are routed,” said Gellasch.

Healthy Markets sent copies of the document to 18 of the largest ATS platform operators and received responses from 12 of them.

“A lot of the statistics told us what everyone expected,” he said. “The execution statistics for a lot these firms regarding trade sizes are on par with what one would see from an exchange. You see the execution quality and the percentage of executions that are at the midpoint.”

The association has aggregated the responses from the ATS operators and generated a 173-page ATS risk assessment report, which it published in the first half of 2016.


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