Is there freedom of choice when it comes to stock executions?
Irene Aldridge, a respected voice in the market structure realm, makes an interesting point about the complex web of execution options in the modern market: There is a lot of choice out there, so much so that buy-side traders can tailor specific trades to their specific needs.
"The explosion of exchange choices, however complex, gives today's investors an unprecedented ability to select their optimum exchange characteristics; fees, volatility, liquidity and probability of extreme events (crashes) being just a few of the parameters. For the first time in the history of financial markets, investors can choose the trading environment in which they feel most comfortable," she writes in a column.
There has even been some talk of giving retail investors more choice in terms of their execution venues. In theory, they might be able to opt for an internalizer or for an exchange proper.
At the institutional level, we wonder if there is enough information floating through the system that makes all the choices a truly empowering phenomenon. My sense is that via certain order types, an in-the-know buy-side trader could indeed tailor trades at a pretty granular level to achieve specific goals.
That said, critical information---about which order types do exactly what---may not be widespread. Some may be reserved for certain clients.
One of the more interesting investigations as of late was built around a complaint by a buy-side guy that he was denied opportunities by not being given access to so-called Hide-not-Slide order types. He argued that it was reserved for preferred customers.