Inverted Exchanges: Higher Leakage or Higher Quality? (March 2018)

The inquiries Pragma has received over the past year on whether inverted exchanges leak more compared to traditional exchanges, in conjunction with some flawed industry research being published, inspired us to take another deep look into this topic. In this note, we examined over 1,000,000 child orders to determine whether there is more leakage posting on inverted venues (there isn’t) and also explain how using TAQ data, like some other notes have done, is deficient and results in incorrect conclusions.