Abstract
The Order Protect Rule in the U.S. generally prohibits any trade-through, i.e., a market order that is not executed at the best possible price among fast (i.e. electronic and automated) trading venues. We conduct a counterfactual analysis comparing the order execution costs of a liquidity demander when trade-through is allowed versus prohibited. By deriving upper and lower bounds for the costs, we find that the trade-through benefit is marginal for small trades and stocks with fast resilience. In particular, our study suggests that the current separate regulations for fast and slow venues may be extended to differentiate stocks with fast and slow resilience speeds.
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