CoachA broker is a member that sends orders on behalf of clients who are not members. The exchange knows only the broker: towards the market the broker is responsible for every order, and for paying for every trade, of every client behind it.
Examples
Example 4.11 (Four models, three crossovers)
Take illustrative charges of 0.30 cent a share with no fixed cost for a broker’s algorithm; 0.10 cent plus $5 000 a month for DMA; 0.04 cent plus $25 000 a month for sponsored access (the client now pays for its own lines and colocation); and $150 000 a month with no per-share charge for a firm’s own membership (compliance, capital, memberships). The crossovers are million shares a month, million, and million. A firm trading 15 million shares a day is past the last one; a fund trading one million a month should not even consider DMA (Figure 4.3).
Example 4.15 (Five percent or nothing)
With billion shares a day, , cent, million and million, . At a 10% share the venue earns $40.6 million; at 2% it loses $23.9 million. But share is not a free parameter: traders send orders where they expect to be filled, that is, where the other orders already are. A new venue must buy its first percent — with rebates above its fees, with equity stakes offered to the brokers who route to it, or with a rule that some group of traders values (a speed bump, a midpoint book). Liquidity attracts liquidity; the history of venues is a short list of survivors.