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Investigation of impact of input parameters for Smart Order Routing in Latency Sensitive Stock Exchange System
KTH, School of Information and Communication Technology (ICT).
2015 (English)Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The same share can be traded in multiple markets and the displayed price and volume for the share may therefore vary in-between these markets. The objective of this project is to study and explore the relationship between displayed order volumes in the market data and the success of the routed orders from Nasdaq that was displayed and matched. Routing here refers as the process for determining the optimal destination i.e. market for an order to sell or buy a share.

The visible volume may however not be accessible, as the Nasdaq Smart Order Router is located in Stockholm while most venues that Nasdaq Nordic currently routes to are located in London. Due to geographic distance there is latency in both the market data and in the order entry. Hence, prices on the market might change which entails that orders are routed away from Nasdaq’s book without getting any trade.

The feasibility of enhancing the Nasdaq routing offer by compensating for the difference in-between the accessible liquidity on away venues and displayed liquidity from the market data feed used by the Nasdaq Smart Order Router is investigated herein. Fill-ratio statistics of orders routed away from the Nasdaq Nordic exchange is investigated. The statistics was gathered per instrument in order to evaluate factors influencing the routing efficiency. Two factors where considered as pertinent with regards to the size of the compensation factor per instrument. Firstly we considered market capitalization and second the listing exchange as potential parameters influencing the fill-rate.

The result showed that market capitalization and different exchanges did not affect the fill ratio. The tentative conclusion is thus that Nasdaq should not consider optimizing their Smart Order Routing based on these parameters.

Abstract [sv]

Ett och samma finansiella instrument kan handlas på flera olika marknader. Det synliga priset och volymen för ett instrument kan därför skilja mellan de olika marknaderna. Syftet med detta projekt var att undersöka relationen mellan konkurrerande marknaders volymer som är synliga för Nasdaqs Smart Order Router och antal avslut av de routade orderna. Routing refereras i den här uppsatsen till den process där den optimala vägen bestäms, med andra ord marknaden för en köp- eller säljorder för ett finansiellt instrument.

Den synliga volymen är inte alltid tillgänglig då Nasdaq Smart Order Router ligger i Stockholm medan handelsplatser som Nasdaq Norden erbjuder routing till är lokaliserade i London. Det finns fördröjning i både marknadsdata och i orderläggning. Under tiden kan priserna på marknaden förändras vilket innebär att ordrar ibland routas från Nasdaqs bok utan att det blir ett avslut.

Möjligheten att effektivisera Nasdaq Smart Order Routing undersöktes genom att studera skillnaden mellan tillgänglig likviditet på andra börser och den likviditet från marknadsdataströmmen som används av Nasdaq Smart Order Router vid routing beslut. Statistik samlades för antalet avslutade affärer utfärdade på andra börser, dvs. andel av den routade orderkvantiteten. Statistiken samlades per instrument för att utvärdera faktorer som påverkar routingeffektiviteten. Vi studerade marknadsvärde och vilken börs det handlades på som potentiella parametrar som påverkar antalet avslut.

Resultatet visade att marknadsvärde och valet av marknad inte påverkar avslutsstorleken. Slutsatsen är därför att Nasdaq inte bör optimera sitt Smart Order Routing system baserat på dessa parametrar.

Place, publisher, year, edition, pages
2015. , 44 p.
Series
TRITA-ICT-EX, 2015:196
Keyword [en]
Smart Order Routing, Nasdaq Nordics, Latency, Fill rate, Smart Order Routing, Nasdaq Norden, Fördröjning.
National Category
Electrical Engineering, Electronic Engineering, Information Engineering
Identifiers
URN: urn:nbn:se:kth:diva-209223OAI: oai:DiVA.org:kth-209223DiVA: diva2:1110918
Subject / course
Communications Systems
Educational program
Master of Science in Engineering - Information and Communication Technology
Examiners
Available from: 2017-06-16 Created: 2017-06-16 Last updated: 2017-06-16Bibliographically approved

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