In arranging for the execution of Non-Directed Orders for equities and listed options, Schwab seeks out industry-leading execution services and access to the best-performing markets. Schwab routes orders for execution to unaffiliated broker-dealers, who may act as market maker or manage execution of the orders in other market venues and also routes orders directly to major exchanges.
Schwab considers a number of factors in evaluating execution quality among markets and firms, 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 the cost of executing orders at a particular market or firm. Price improvement occurs when an order is executed at a price more favorable than the displayed national best bid or offer. Schwab regularly monitors the execution quality obtained to ensure orders are routed to market venues that have provided high-quality executions over time.
Relationships with Market Venues
A principal benefit of executing orders through liquidity providers is the higher likelihood of price improvement such firms can provide, as well as enhanced liquidity or price protection for larger orders (i.e., executions at greater size than the limited size displayed at the current market quote). Schwab tracks execution data closely and maintains order routing arrangements with leading liquidity providers to maximize opportunities for price improvement and liquidity enhancement. On most Schwab platforms, clients can see the price improvement received on eligible equity orders on the Order Status page or in Order Messages. To find out the percentage of orders that have received price improvement and the average improvement amounts over the last quarter, visit our Retail Execution Quality Statistics page.
Order Routing Intro Table
- Total Price Improvement on Client Orders
Total Price Improvement on Client OrdersIn the 4th Quarter of 2023, Schwab clients received $446 million in price improvement on their equity and option orders, in addition to enhanced liquidity for larger orders provided by liquidity providers.>
As part of a common industry practice known as Payment for Order Flow, Schwab receives rebates from liquidity providers and certain exchanges based upon the order flow executed at each destination. Some orders require us to pay associated transaction costs, but most orders result in rebates. Net rebates received by Schwab are used to offset transaction and order processing or handling costs and help us maintain very low commission rates for our clients. Rebate rates are substantially similar among the various securities exchanges and liquidity providers, although they vary based upon order characteristics (i.e., marketable vs. non-marketable).
At Schwab we put our clients' interests first. Therefore, best execution for our clients always takes priority when determining where to route orders. Any eligible rebates from a particular market center are not a consideration in order routing decisions.
Quarterly information regarding the market venues to which we route orders and remuneration we receive is provided below. Information regarding the routing destination and time of execution of individual orders for up to a six-month period is also available.