An institutional investor uses a large investment bank as its broker to handle a buy limit order and the bank steers the institution's order to a dark pool that the bank operates.
Given that the NBO at the time Maria sent the order, $95.29, is below--that is, at least as favorable as--Maria's $95.31 limit, we refer to her order as a marketable buy limit order. (42) This is because it will behave just like a market order and execute at whatever is the then-current NBO unless the NBO has changed and has moved to above $95.31 in the brief time it takes her order to arrive at the trading venue to which it is ultimately sent.
In contrast, a nonmarketable buy limit order is a buy limit order with a price limit below the NBO at the time it is sent.
This way, if there was at least one midpoint buy limit order posted at Opaque for IBM, it will execute against Lightning's order at $161.13, halfway between the now-stale, but still official, NBB of $161.11 and NBO of $161.15.
Consider first a trader who wishes her broker to submit on her behalf a nonmarketable buy limit order. This buy order will be competing with bids posted by HFTs.
Now consider a trader who wishes its broker to submit on his behalf a marketable buy limit order. The price he will need to pay will be P + S + [B.sub.m], where [B.sub.m] is the broker's commission for nonmarketable orders posted on this venue.
(21.) The computer will also match the limit orders posted on the venue with "marketable limit orders." A buy limit order is "marketable" when it has a limit price greater than or equal to the lowest offer in the market and a sell limit order is "marketable" when it has a limit price less than or equal to the highest bid.
We find that executed sell limit orders cluster more frequently on round increments than buy limit orders and that this asymmetry in clustering is consistent with the well-documented asymmetry in price response to marketable orders.
In aggregate, executed sell limit orders cluster on round increments more often than executed buy limit orders. Consistent with extant literature, we find that marketable buy orders have higher price impacts than sell orders.
When prices are rising, the stock return is positive, sell limit orders placed on round increments execute more frequently than buy limit orders. Conversely, when prices are falling, the stock return is negative, buy limit orders priced on round numbers execute more often than sell limit orders.
Here, large quantities of clustered buy limit orders intersect with marketable sell orders, prolonging the stock's price decline.
Combining the price resolution hypothesis with this asymmetry in price impact, we propose that executed sell limit orders should cluster on round increments more frequently than executed buy limit orders.