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RFS Advance Access originally published online on June 30, 2006
Review of Financial Studies 2007 20(2):315-358; doi:10.1093/rfs/hhl011
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Public Disclosure and Private Decisions: Equity Market Execution Quality and Order Routing

Ekkehart Boehmer
Texas A&M University

Robert Jennings
Indiana University

Li Wei
New York Stock Exchange

Address correspondence to: Ekkehart Boehmer, Department of Finance, Mays Business School, Texas A&M University, College Station, TX 77843-4218, or e-mail: eboehmer{at}mays.tamu.edu.


  Abstract

In 2001, the Securities and Exchange Commission (SEC) required market centers to publish monthly execution-quality reports in an effort to spur competition for order flow between markets. Using samples of stocks trading on several markets, we investigate whether past execution quality affects order-routing decisions and whether the new disclosure requirements influence this relationship. We find that routing decisions are associated with execution quality; markets reporting low execution costs and fast fills subsequently receive more orders. Moreover, the reports themselves appear to provide information that was unavailable previously. Our results are consistent with active competition for order flow that can be influenced by public disclosure. (JEL G24, G28, K22)


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