I originally thought that you have an orderbook per stock and orders would be filled on the time at which they arrive. Arrive first and you get the best price and the qty in the orderbook is reduced by however large the first order was. Second order arrives, that gets the next best price etc.

However, I keep hearing/reading this isn't the case and HFT players in particular get an unfair advantage on order routing/orderbook filling.

Could somebody please explain what are these unfair order execution techniques? I am surprised how anything but first-order-gets-filled-first could be legal.


3 Answers 3


I have heard of several allegations in the recent days, but they are mostly baseless.

However, there are a rare, few trading venues whose matching rules are most often accused of giving unfair order execution advantages to certain firms. These usually arise from violations of the standard price-time priority:

  1. IEX's broker priority rule. "All orders will be matched according to price-broker-time priority." This disadvantages orders with non-broker status.
  2. NYSE and NYSE MKT's parity rules. These benefit DMMs and floor brokers, retaining the character and spirit of the NYSE specialist privileges.

Finally, the practice of payment for order flow has also received strong criticism for giving certain firms unfair advantages. It must be noted however that it's a common mistake to identify an order flow internalizer as a "HFT" firm. The leading order flow internalizers (e.g. Wolverine, Morgan Stanley, Citi, UBS) are not conventionally known as "HFT" firms.

  • $\begingroup$ Hi- thanks for replying. Apparently there are various "special" order types which determine matching rules? $\endgroup$ Jun 29, 2014 at 0:41
  • $\begingroup$ @mezamorphic: The order type does not determine the matching rule. The exchange specifies the matching rules in accordance to regulatory requirements. The 'special' order types are there to reduce messaging traffic which would otherwise be incurred by participants replicating those order types using conventional order types. I am pleased that those order types exist so I do not have to spend millions to upgrade all my hardware to 40/100 Gbps. $\endgroup$
    – madilyn
    Jun 29, 2014 at 3:11
  • $\begingroup$ What is the motivation for price-broker-time? To force more people to pay a participant's fee or what? $\endgroup$ Jun 29, 2014 at 15:44
  • $\begingroup$ @user2763361 Yes, probably. Although the official argument from Katsuyama is that it is to encourage the equivalent of 'internalization' to take place on dark pool instead, which sounds rather flawed and PR-generated. I'm neither a fan of fragmentation, nor internalization, nor violations of price-time priority. $\endgroup$
    – madilyn
    Jun 29, 2014 at 21:19
  • $\begingroup$ Just to clarify on broker priority, what this means is that by and sell orders will match first on price and then if there are a buy and sell from the same broker then they will match. This is common in Canada where the TSX works by the same rules. There is no such thing as a non broker order in the sense that all funds must either have a broker number or use a broker to send orders through. This means that often one broker will have all the HFT firms use them as it becomes winner take all. $\endgroup$
    – chollida
    Jun 30, 2014 at 14:52

In addition to @madilyn's answer, there is one point that needs to be addressed and that is often called an unfair advantage although it is merely a competitive advantage.

Take the US Equities market. There are now several venues on which the same symbols are traded. If one HFT acquires information about one symbol in one venue - e.g. due to a limit order being filled - it might try to act upon that information very quickly on the other venues on which it is also active. That may result in surprising behavior to people with little knowledge of market microstructure. For instance, quotes on other venues may be cancelled before every chunk of a single order sent to a broker (and naïvely routed) has reached its venue, resulting in partial fills or slippage.

HFT firms pay dearly for connectivity and colocation and work on very tight profit margins. In return, they get the possibility of making more efficient use of new information than most other market participants. If you take speed away, the vast majority of venues (and the most active ones) do not offer any particular advantage to an HFT than to any other participant. As for speed, it is a matter of access like in any other field, and criticizing HFTs because of that is like arguing that floor traders had an unfair advantage in the days when pit trading was the only way to trade actively. There is a service being provided, people investing time and money to do that, competition driving profits down and costs up. Nothing unfair to it, really.


Haim Bodek wrote a lot of research, not all those order types still exist, but it's a fascinating read:



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