Glossary

Average Effective Spread (AES), in cents per share - Expression of how well an order was executed in comparison to the NBBO. The formula for determining the average effective spread is driven by how often a market center improves prices and by how much. AES calculates how much above the midpoint of NBBO you paid on a buy order and how much below the NBBO midpoint you received on a sell order. Lower is better.

Effective/Quoted Ratio - The result of a formula that compares the average effective spread with the quoted spread (difference between NBBO offer and NBBO bid at time of order entry). When an order is executed exactly at the NBBO, then the Effective/Quoted Ratio is 100%. Lower ratios indicate execution below the NBBO and, thus, greater cost savings to clients.

Equity Order - Instruction to a broker-dealer to buy, sell, deliver, or receive securities that commit the issuer of the “order” to the terms specified.

Execution Price - The price at which an order to buy or sell securities is completed.

Execution Speed - The time it takes for an order to be executed. At Schwab, execution speed is measured from the time a customer's order is received by us to the time of execution at the market maker or market center. The time that it takes for the order execution to be reported back to Schwab and posted to the order's status is not factored into the time report for execution.

Intelligent Order Routing (IOR) - A technological process that takes each order through a "hunt and seek" process in the marketplace to match the order to the best available price.

Liquidity - The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. The ability to convert an asset to cash quickly and with little or no price discount. Liquidity is characterized by a high level of trading activity.

Liquidity Enhancement - Occurs when a market maker or exchange executes a greater share quantity of an order than the corresponding displayed size at a given bid or ask. For example, the NBBO on a security is bid 15.17 - ask 15.21 and there are 100 shares available at the bid and 100 shares available at the ask. In this example, a marketplace that was able to fill an order for more than the displayed size of 100 shares at either the bid or the ask would be providing enhanced liquidity.

Market Depth - A term used to describe the amount of liquidity in a particular equity (or group of equities) at a particular point in time. Often, as the "depth," or number of equities, at play in the marketplace increases, traders are more likely to find sought-after prices and size.

NBBO (National Best Bid and Offer) - A term applying to the SEC requirement that brokers must seek for customers the best available ask price when they buy securities and the best available bid price when they sell securities. NBBO is the bid and ask the average person will see. Day traders usually use Level 2 market maker screens to see ALL the bids and offers for a particular equity. The NBBO is updated throughout the day to show the highest and lowest offers for a security in all exchanges and market makers.

Price Improvement - Practice of providing a better execution price than the quoted NBBO on market and limit orders for listed and over the counter securities. If a customer is buying, price improvement would mean that the order received an execution at a price lower than the displayed national best offer price, and if they are selling, it would mean they received an execution at a price higher than the displayed national best bid price.