All else equal?: a multidimensional analysis of retail, market order execution quality

The extant execution quality literature generally suggests that brokers routing orders away from the NYSE might not fulfill their fiduciary best execution responsibility. This conclusion is drawn by comparing execution prices across trading venues and presumes that other execution-quality characteristics are equivalent. Using order audit-trail data, we find evidence that retail market orders obtain better trade prices on the NYSE but faster executions, more depth improvement, and order-flow payment at Trimark Securities, a Nasdaq dealer. Thus, non-price dimensions of execution quality are not equivalent across trading venues. Furthermore, considering order flow payments, brokers obtain better net prices with Trimark. If brokers pass enough of these payments through to investors in the form of lower commissions and/or better services, then investors also obtain better net prices with Trimark. Our results suggest that it may be misleading to evaluate execution quality or to base policy decisions on comparisons focusing on only execution prices. (C) 2002 Elsevier Science B.V. All rights reserved.