If you have the bundled IB rate, where it is a flat .005 / share, no +- ECNs... the broker keeps / pays that. If you route SMART IB has total discretion of where to send the order... why don't they send mostly all the Providing liquity orders to ECNs which pay, I've noticed that the majority of mine get routed to the NYSE
def, Will XYZ order be routed the same way by IB's SMART router if one has bundled versus unbundled pricing structure?
If a broker sends an order down to an exchange/ECN where the quote is away from NBBO, the order will be rejected (on NSX for example), or a the broker will be charged for a routing fee (there are few exceptions). So it is important for SmartRouter to send an order to the exchange that posted NBBO. The second factor is rebate/liquidity matrix to keep the execution cost low. NYSE recently lowered it's fees, so now wonder NYSE is often preferred place to trade listed stocks. I trade NYSE listed stocks only and always get instant fills since I always set the destination to NYSE (remember that IB is a member of NYSE, so they must have direct FIX connections to the exchange).
I don't agree with the your first assertion... That orders "away from the NBBO" are in any way penalized. The regulation is "best execution"... NOT "best price". There is NO obligation for any broker to get you the NBBO... If they can make a case that, overall, your trades are getting "best execution"... And that case can be made using about a dozen loopholes and exceptions. IB can easily make a case that SMART, overall, gets the Customer "best executions"... Regardless of whether any particular trade gets NBBO... or not. On your 2nd point... The reason 80% of my SMART Limit Orders go to the NYSE and are executed there... Is because that is the primary market for most listed stocks... And that is where you are MOST LIKELY to get an execution. The NBBO is irrelevant... if no execution. Actually getting an execution as often as possible... Is everyone's primary interest. Many active traders... Would rather do double the volume at slightly worse prices... And make more money overall.
If you care more about executions than the price, just shoot ISO and DNS orders to NYSE. You'll quickly kill yourself sweeping the book... Brokers are also under RegNMS, but in a different way. I agree there are legitimate ways for exchanges to fill you from their book thus "violate" RegNMS. Under normal conditions I have to have NBBO price if I match NBBO size. Period. But this is exactly the point why a lot of desks use SR - that guy would watch a dozen of exchanges and give you best fills. You want to grab liquidity from all exchanges that match NBBO price, not just from exchange published NBBO, don't you?. Shitty and ridiculously slow IB SR is IB's problem (and customers of course). I would never use it. And I'd like to correct you about NYSE flow. Last stat shows that NYSE trades 44% of all listed stocks volume. So NYSE is not always the best place to park orders. Although with recent changes and I hope NYSE will regain it's previous flow (at least at some extent). This fragmented flow is a killer...
orders will be routed for best price first and foremost. If there is a "tie", I can't provide further info on the US markets as that is no longer my area of expertise - too many years in Asia.
I always get NBBO... if I want to... But not because IB gets it for me. TWS does not even provide an NBBO quote. The ONLY way to reliably get the NBBO through IB: (1) Need 3rd party pro grade quote terminal with quality NBBO... I have Thomson. (2) Set limit order to NBBO... route through SMART. My trading is very optimized and very profitable... But I know most other traders are getting chiseled. As for your 2nd point... I trade low volume stocks... < 100,000 shares/day. For these... NYSE totally primary with > 80% of volume... There is no real market for my stocks outside of NYSE. My executions are 80% NYSE, 12% IDEAL/SMART, 5% Island... 9 months ago it was 93% NYSE. I'm not really disputing you... You're one of the few people here that knows his stuff. But low volume stocks... Must be traded very differently from large caps or futures... It's a completely different game.
Why do you make false assumptions? It's a BAD habit. I trade lower volume stocks... And I always get NBBO... if I want to... But not because IB gets it for me. TWS does not even provide an NBBO quote... BY DESIGN. The ONLY way to reliably get the NBBO through IB: (1) Need 3rd party proffesional grade quote terminal with quality NBBO quote... I have Thomson. (Those guys you talk about "pooling" quotes... Probably just have a Thomson or Reuters terminal... they are ubiquitous). (2) Set limit order to NBBO... route through SMART. Bingo. My trading is very optimized and very profitable at 3,500,000 shares this month... But I KNOW many other traders are taking it up the ass... And don't feel a thing. As for your 2nd point... For lower volume stocks < 100,000 shares/day... The NYSE is TOTALLY the primary with > 80% of volume... There is no real market for my stocks outside of NYSE. My executions are 80% NYSE, 12% IDEAL/SMART, 5% Island... 9 months ago it was 93% NYSE. I'm not really disputing you... You're one of the few people here that knows his stuff. But low volume stocks... Must be traded very differently from large caps or futures... It's a completely different game.