3. If a retail broker receives a non-marketable order, send it to APEX first. If it’s executed against you’re done. If not, wait a second (or whatever) and then send it to a lit venue.
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What’s wrong with the following market structure idea? 1. Set up an order book that only retail brokers can send orders to, call it APEX for example. 2. Whenever a retail broker receives a marketable order, send it to the venue with the best price (either APEX or a lit venue)
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4. When a trade happens on APEX, measure the price improvement vs NBBO and pay a percentage of that to the retail brokers. 5. If for whatever reason a trade happens on APEX at worse than NBBO the retail brokers eats the full difference.
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The idea is to maximise the amount of retail matching inside the NBBO and pay brokers only when they can get price improvement for their clients, as well as preserving the ability to charge zero commissions (because that’s not going away now)
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I haven’t really thought about how the percentage that brokers receive should be determined. Maybe they advertise and compete on that number? Or maybe it’s fixed and they compete on how much retail flow they can cross and how much px improvement they get?
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Anyway this is probably dumb for some reason I haven’t thought of but it seems not obviously worse than the current system so…
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A bit more details: you also want to allow any participant (retail, agency algo, HFT) to post on this platform, but only retail brokers can take. Also retail brokers need to go through small speedbump to avoid gaming.
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make it dark to encourage institutions to post size without fear of leakage. Pay to provide to replace pfof. Force retail brokers to sweep pool first(already takes 100-200 ms to fill now)
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This is basically spot fx market structure. The nuance is that you will have flow infiltration by toxic takers into retail pools, whether covert (literally hft firms onboarding as takers) or accidental (order recyclers) so flow policing ends up harder than it looks
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Nyse has something like this already where retail liquidity providers off retail price improvement off the pbbo
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I was thinking about this after the spaces, and would it not be easy for retail brokers to just allow customers to opt out of having their flow routed through a market maker? Let the consumer decide if they’d rather have the tighter spread/better execution or not.
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In principle sure — in practice most people are never going to think about it so it makes a huge difference whether it is opt out or opt in.
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