Trade execution glossary
Get to know the language behind trade execution. With these key terms all in one place, you can quickly find the information you need and make sense of it all.
An alternative trading system (ATS) is an execution platform that brings together buyers and sellers of securities, similar to how orders are matched on an exchange. The system operator must be a licensed broker-dealer registered under SEC Rule ATS and must comply with various conduct and reporting requirements.
Best execution refers to a broker-dealer's obligation to seek the most favorable terms reasonably available for the execution of orders. For large-scale, automated order routing, this obligation includes the duty to regularly and rigorously evaluate the quality of executions provided for orders in aggregate by each venue and to adjust routing as appropriate.
Schwab considers a number of important factors in evaluating execution quality, including execution price and opportunities for price improvement, market depth and order size, the trading characteristics of the security, speed and accuracy of executions, the availability of efficient and reliable order handling systems, liquidity and automatic execution guarantees, the likelihood of execution when limit orders become marketable, and service levels and cost of executing orders at a particular market or firm.
A held order is an order that is intended to be represented in the market or executed as soon as practicable without discretion. Schwab reserves the right to review an order prior to routing for display/execution.
A liquidity provider is a broker-dealer who executes orders based on their assessment of how to obtain the best executions. They may act as a market maker and execute orders against their own account or route orders directly to other execution venues such as alternative trading systems or securities exchanges.
Market hours are when regular market session trading occurs: from 9:30 a.m. to 4:00 p.m. ET.
A market maker commits its own capital and stands prepared to buy and sell securities at quoted prices during the trading day.
A market order is an order to buy or sell a security at the current price available in the market.
A marketable limit order is an order to buy (or sell) in which the limit price is at or above (or below) the current market.
A marketable oversized order* is an order that consists of at least 10,000 shares or has a market value of at least $200,000.
* Block size order as defined by SEC Regulation National Market System (NMS).
The National Best Bid is the highest displayed round lot price available for sell orders to immediately trade against. It is a composite of all national securities exchanges' quotes.
The National Best Offer is the lowest displayed round lot price available for buy orders to immediately trade against. It is a composite of all national securities exchanges' quotes.
A non-directed order is an order that does not include instructions to execute on a specific exchange.
A non-marketable limit order* is a buy or sell order that can't be executed immediately, either because the limit price is outside the current market or because of specific conditions (such as all-or-none).
Regulations** require certain non-marketable orders to be posted on a securities exchange for display in the marketplace. Depending on the order type, it may be reflected on the National Best Bid or Offer.
* Non-marketable limit orders that become marketable during the routing process may be re-routed to one of our liquidity providers.
** See SEC Regulation NMS Rule 604 for more information.
A non-marketable oversized order* is an order that consists of at least 10,000 shares or has a market value of at least $200,000.
The order display requirements do not apply to oversized orders.
Seeking to maximize execution opportunities, Schwab routes non-marketable oversized orders either to a securities exchange or to liquidity providers who will route to an exchange where they will be displayed for potential execution against incoming orders.
* Block size order as defined by SEC Regulation National Market System (NMS).
A not-held order is an order granting a broker-dealer time and price discretion to transact on a best-efforts basis in an attempt to achieve best execution. Not-held orders can be used as part of a more sophisticated order strategy that is intended to minimize market impact on less-liquid securities or large orders.
Price improvement occurs when an order is executed at a price lower than the quoted offer when purchasing or a price higher than the quoted bid when selling. The amount of price improvement per share may be less than the minimum quotation price increment (typically, one cent).
A securities exchange is an entity that has registered with the SEC under the Securities Exchange Act of 1934 and facilitates the buying and selling of securities among market participants.
