Smart Order Routing places orders where the shares are traded at several points in order to get the best price. Smart Order Routing provides a layer where the merchant or strategy sees a synthetic order book (also called consolidated order) consisting of liquidity from multiple venues, using SOR can shop in the synthetic order book. Examples of Smart Order Routing strategies include Spray and Split. Advanced Smart Order Routing also handles dark pools (anonymous trading) using trade application tracking.
A trustee of a fund has decided to sell its holding of its investment in the telecom sector. The position is in this case 100 million in individual share. In order to carry out the order calling the nominee to its brokers, contacts the bank, and ask for permission to sell stake in the company. The administrator instructs that the order must be carried out during the day.
The broker at the bank finds that the order is too large to perform immediately, the broker decides to use algorithmic trading. The broker believes that VWAP algorithm for the day is the appropriate strategy execution. This means that the broker puts a sell order in shares in their system and then follows the computer’s behavior during the day. At the end of the day he reports to the administrator on how the sale went.
