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Article

Does Smart Routing Matter?

Jeff Bacidore, Hernan Otero and Alak Vasa
The Journal of Trading Winter 2011, 6 (1) 32-37; DOI: https://doi.org/10.3905/jot.2011.6.1.032
Jeff Bacidore
is a managing director in Quantitative Investment Strategies at Goldman Sachs Asset Management in New York, NY.
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  • For correspondence: jeff.bacidore@gs.com
Hernan Otero
is a vice president in Algorithmic Trading, Quantitative Investment Strategies, at Goldman Sachs Asset Management in New York, NY.
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  • For correspondence: hernan.otero@gs.com
Alak Vasa
is a vice president in Algorithmic Trading, Quantitative Investment Strategies, at Goldman Sachs Asset Management in New York, NY.
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  • For correspondence: alak.vasa@gs.com
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Abstract

The authors compare the performance of broker smart routers for non-marketable and marketable orders. For non-marketable orders, smart routers that “naively” route to maximize liquidity rebates perform significantly worse than those routing to maximize fill rates. The difference between the best and worst broker smart router is about 10% of the bid–ask spread (0.4 basis points), on average, for large-cap stocks and 6% of the spread (0.9 basis points), on average, for small-cap stocks,which is a significant difference for cost-sensitive traders. The authors also find that the best brokers perform well across all liquidity groups. For marketable orders, however, smart router performance generally does not vary significantly across brokers.

  • © 2010 Copyright Goldman Sachs & Co. All rights reserved. Rev # 39925.OTHER.OTU.
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The Journal of Trading: 6 (1)
The Journal of Trading
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Does Smart Routing Matter?
Jeff Bacidore, Hernan Otero, Alak Vasa
The Journal of Trading Dec 2010, 6 (1) 32-37; DOI: 10.3905/jot.2011.6.1.032

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Does Smart Routing Matter?
Jeff Bacidore, Hernan Otero, Alak Vasa
The Journal of Trading Dec 2010, 6 (1) 32-37; DOI: 10.3905/jot.2011.6.1.032
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