CHAPTER 4

Introduction to the ECN Platforms and Order Routing

Before trainees were allowed to touch a single trading terminal, Liz handed out a booklet with the month's updated fee schedule for each of the ECNs, alternative destinations, and the NYSE floor routes.

At the time I trained under my branch of Swift Trade Securities, the pricing dynamics were relatively simple: Most destinations would pay you in the form of rebates if your order adds liquidity to the market through their system, and they would charge you a fee if your order removes liquidity from the market using their system. While these fees often changed from month to month (and still do in many cases), due to competition between the top exchanges and ECNs, the industry standard was in the vicinity of paying you a 0.0025 per share (2.50 per thousand shares traded) rebate to add liquidity and charging you a 0.0030 per share (3.00 per thousand shares traded) fee to remove liquidity. Since, by its very nature, every given transaction that occurs through any particular ECN platform would have involved an order that is adding liquidity being automatically matched with an order that removes liquidity, the ECN itself will always pocket the difference as a markup for providing its order matching service. In some rare cases, depending on the volume transacted by a firm through certain ECN platforms, some would also offer a rebate that may be up to the amount as large as the fee for liquidity removal, so that the ECN would ...

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