market architecture of selected stock exchanges in ... - Gilles Daniel

37limit of a buy (sell) order is usually lower (higher) than the best counterpart offer(bid) prevailing at the time the order is placed in a continuous market. On occasion,they may not execute at all. If a limit order does execute, it generally does so at itslimit price. Since “they establish the prices at which market order placers can trade,limit orders traders are characterized as immediacy-suppliers”(Beiner and Schwartz2001, p.102).In a call auction, limit orders execute at the common clearing prices, not at the pricesat which they are written. Hence, orders that can be executed are all market buyorders, buy limit orders at the clearing price and above, all market sell orders and selllimit orders at the clearing price and below. In a call auction, there is no differencebetween limit and market orders. Market orders are executed at the prevailing pricein the market and thus can be seen as “a limit order placed at an arbitrarily high price(for a buy order) or an arbitrarily low price (for a sell order)” (Beiner and Schwartz2001, p.103). Therefore, market orders will generally execute in a call marketalthough this may not be stated by the rules of the respective exchanges (Beiner andSchwartz 2001).Table 15: Order Handling in Call vs. Continuous MarketsContinuous OrderDriven MarketCall AuctionMarket OrdersExecute at the best counterpart quoteExecute immediatelyImmediacy demandingExecute at the clearing priceNo immediate executionNot immediacy demandingSource: Beiner and Schwartz (2001)Limit OrdersExecute at price of the orderDelayed or no executionImmediacy supplyingExecute at the clearing priceNo immediate executionNot immediacy demanding3.6.2 Order RoutingAfter the investor has defined the order type, its execution condition and validity, theorder is sent to the broker, whether written via an automated system or verbal e.g. viatelephone. However, it is up to the broker to seek the best execution available. Thereare different channels the broker can use for trade execution (see Figure 9) - whichone he uses determining the order flow is called order routing.