order priority

N

nocloud

Hi, does anybody know how orders submitted to the exchange are prioritised?

For limit orders for instance, are they filled according to the order they are received or does the size of the order also play a role? Also, are hidden orders given lower priority vs show orders?

I had a recent experience with BAC where if the bid was at 8.08, ask at 8.09, a limit order submitted at 8.08 would not fill despite the fact that there were frequently last trades with price 8.08. Even if my buy at 8.08 was submitted relatively early, I would not get filled until the ask falls to 8.08 or lower. This was using a DMA (direct market access) brokerage so I suspect it is something to do with exchange order priorities.

Can anybody offer any insight?
 
I am not sure what their mechanics are, but I know that it will most likely vary between exchanges and ECNs, etc. Which ones are you trying to inspect specifically?
 
Mostly ARCA and NASDAQ, these are the two venues where I submit the majority of my order flow. I have heard somewhere that hidden orders are only filled after all of the show orders have been filled.

Assuming we are only talking about show orders, I'm wondering if they are filled in the order they are received or whether there is some other mechanism that can allow somebody else to cut in line in front of you...

With DMA, the brokerage shouldn't be front running you, could there be an issue with flash traders cutting into the queue?
 
DMA brokers all have different latency figures. If the orders are filled in the order they were received, the issue will be in sending your order first...which would probably mean automating and co-locating your strategy at one of the exchanges.
 
Yes, the machine is colocated. In the BAC example I tested this on, the price was holding steady for an extended period of time so it wasn't a matter of getting the order to the exchange rapidly enough before the price moved.
 
Quote from nocloud:

there were frequently last trades with price 8.08. Even if my buy at 8.08 was submitted relatively early, I would not get filled until the ask falls to 8.08 or lower.
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On any given exchange, generally, orders submitted earlier will execute before orders submitted later and displayed orders will execute before hidden orders. This is true for orders submitted on the same exchange. However, if your buy order is on NASDAQ at 8.08, you could see many shares trade on other venues at 8.08 before your NASDAQ order at 8.08 gets filled. These executions could be occurring on other exchanges like DirectEdge or Bats, or trading in dark pools, or they could be "internalized trades".
 
what exactly do you mean by "internalized order"?

when i did this experiment, the price was steady for over 10 minutes and the order was submitted to ARCA, seems odd that i wasn't able to get filled in ARCA during that time.
 
Thanks for the link, it shed some light on the topic. There are a couple parts of broker-dealer internalisation that still don't entirely make sense.

Does a DMA broker perform internalisation?

The article seems to suggest that this only impacts orders set to show. Is it true that hidden orders are not subject to this?
 
I am not aware of anything that would stop a broker from offering DMA services to its customers while at the same time "internalizing" marketable customer orders. Also, im not aware of anything in the article or otherwise that would cause internalization to affect displayed orders more than hidden ones or vice versa. Bottom line is a significant number of orders are "internalized" by the broker before they make it to the exchanges, and resting limit orders on the exchanges never get to interact with those internalized orders, regardless of whether the resting limit orders on the exchanges are displayed or hidden.
 
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