Quantifying market order execution quality at the New York stock exchange

This paper provides a detailed description of how to quantify best execution on market orders. We address two important issues: how to measure best execution on market orders and the need for cross-market standardization to facilitate comparisons. We propose six measures for quantifying best execution on eligible system market orders and present NYSE estimates for August 1999. These measures include percent executions inside the quote, percent executions outside the quote, percent discount relative to the quoted price, percent executions receiving depth improvement, percent single price executions, and turnaround time. We also show that best-execution statistics are sensitive to the calculation methodology. For valid cross-market comparisons, therefore, we must standardize methodologies and control for other factors that may affect best execution performance. (C) 2002 Elsevier Science B.V. All rights reserved.