Katya Malinova PRO
I am an Associate Professor, Mackenzie Investments Chair in Evidence-Based Investment Management at the DeGroote School of Business, McMaster University, Canada.
Discussion of
"Best Execution Puzzles"
by Indira Puri, Mohan (Fred) Sun, and Mao Ye
Discussant: Katya Malinova
DeGroote School of Business, McMaster University
53rd Annual Meeting of the European Finance Association · August 19–22, 2026
Vlerick Business School, Ghent, Belgium
Some venues are both slower & more expensive. Puzzle: why do they exist?
Why do apparently dominated venues get flow?
Typically ranked on two dimensions: cost & speed.
This paper: a third dimension: timing reliability.
This paper: a third dimension: timing reliability.
Is timing uncertainty priced?
Yes. And the tail (non-execution) matters most.
How to address?
Rule 605 data. 2013–2016.
Timing histogram to get the execution time vol
80 off-exchange venues.
Timing histogram to get the execution time vol
80 off-exchange venues.
Two approaches
Reduced form
Execution time dispersion from Rule 605 bins: <9sec, 10-29, 30-59, 1-5min, 5-30min
Regress effective spread on speed, speed volatility, non-execution
Is execution timing uncertainty priced?
Venue-choice model
Heterogeneous trader preferences over venue attributes
Fitted to observed venue shares
Can we rationalize coexistence?
Data note: 22.6m venue–stock–month cells → 2.6m used. Most cells have zero measured dispersion (single bin); this also removes exchanges, mostly in the <9sec bin.
→ A venue enters only through cells with non-zero dispersion. Conditioning on "hard to fill"?
Q1-A: how much of a puzzle is this?
Effective spread (bps) costlier ↑
Time to fill (seconds) slower →
Q1-B: might we expect slow to be expensive?
605 data: “slow” = very slow → over 9 seconds
Orders are marketable on arrival.
Either fill on arrival
→ at or inside the quote →low spread
Or don't fill, and rest
→ wait for the market to come to your limit
→high spread (relative to mdpt @entry)
→high spread (relative to mdpt @entry)
→ slow can be mechanically more expensive.
→ why not execute? low depth? a liquidity effect?
→ is the bigger puzzle fragmentation/existence of illiquid venues (many explanations
As an aside: once resting, the order supplies liquidity — execution time is now about limit price and queue position (Lo, MacKinlay & Zhang; Yueshen).
Q1-A: how much of a puzzle is this?
Effective spread (bps) costlier ↑
Time to fill (seconds) slower →
Q1-B: might we expect slow to be expensive?
605 data: "slow" = very slow → over 9 seconds
Orders are marketable on arrival.
Either fill on arrival
→ at or inside the quote → low spread
Or don't fill, and rest
→ wait for the market to come to your limit
→ high spread (relative to mdpt @entry)
→ high spread (relative to mdpt @entry)
→ slow can be mechanically more expensive.
As an aside: once resting, the order supplies liquidity — execution time is now about limit price and queue position (Lo, MacKinlay & Zhang; Yueshen).
And: why didn't it execute? Low depth? Is speed volatility partly a liquidity measure?
And: is the broader puzzle the existence of illiquid venues?
Q2: what is being priced?
Speed vs dispersion ✓
Strongly co-move; the coarse bins make it challenging to separate. BUT: the paper's ETF results help here.
Dispersion vs tail risk
The paper does distinguish these. BUT: the strongest evidence is for extreme delay or non-execution.
→ Is the object execution speed volatility — or non-execution risk?
Good news, bad news: amended Rule 605 collection began August 1
- much finer time-to-execution buckets
- median and 99th percentile of time to execution reported directly
Q3: bifurcation of trading venues?
Low-fill venues look faster and cheaper (conditional on execution; Table 1, Panel C — raw means).
"Unfilled" here ≠ never executed: non-execution at the receiving venue can include routing elsewhere.
Is the low spread partly a consequence of selective execution and/or venue business model?
Q4: what explains the pattern?
Less-predictable execution timing ↔ lower effective spreads.
Table 6: ATSs are more predictable & costlier → architecture matters. But through what channel?
Paper: rule-based ATS matching vs greater non-ATS execution discretion.
Demand (the paper)
Traders pay more for predictable timing.
Screening
Uncertain fills can screen out informed traders. (also, Zhu, 2014)
Selection / access
Different mechanisms allow & attract different orders. Often the broker routes.
- Citadel and Knight internalize; Instinet, Level, UBS ATS match (dark).
- Not freely routing to all 80: PFOF, affiliation, connectivity.
Heterogeneous preferences — or heterogeneous choice sets
→ does this affect the venue-choice model?
Would Rule 605 realized spread help tell some of these apart?
One puzzle solved: execution timing uncertainty is priced.
Would love to know more detail on the next one: why.
Fun paper.
Go read it.
EFA Discussion Aug 2026
By Katya Malinova
EFA Discussion Aug 2026
This is discussion that I gave at the CBER 2026 in June 2026 in NYC. If viewing online, best viewed in Chrome, Safari may not render properly. Just scroll down, no 2x2 arrangement for this one.
