Definition
Price/priority logic determines how an execution engine selects which liquidity provider's quote wins when a client order arrives. In the simplest model, the LP offering the best price at the moment of order submission receives the fill. In practice, execution engines use multi-factor scoring that weighs price alongside other variables such as historical fill rate, reject rate, response latency, and slippage behavior.
This logic sits at the heart of any broker's execution policy. It determines whether clients consistently receive competitive fills or whether the engine is optimized for broker revenue (e.g., routing to the LP with the widest spread or highest markup tolerance). Understanding this layer is essential for evaluating whether "best execution" claims are substantive.
What It Is / What It Is Not
What Price/Priority Logic IS
- The algorithm that selects which LP receives a client order
- May be pure price/time priority (like an exchange) or multi-factor weighted
- Configurable by the broker -- parameters can be tuned to favor different outcomes
- Central to best execution obligations under MiFID II and similar regulations
- Directly affects execution quality: spread, slippage, fill rate
- Operates within the SOR/bridge layer of the execution stack
What Price/Priority Logic IS NOT
- Not visible to clients unless the broker publishes its methodology
- Not the same as price aggregation -- aggregation builds the composite, priority selects the route
- Not static -- brokers can and do change scoring weights over time
- Not necessarily client-aligned -- can be tuned to optimize broker P&L
- Not a regulatory requirement to disclose in detail (varies by jurisdiction)
- Not a single standard -- every broker implements its own version
Allocation Models
Different allocation models reflect different priorities. A broker optimizing for the client's best price uses strict price/time priority. A broker optimizing for fill certainty might weight historical fill rate more heavily. A broker optimizing for its own revenue might favor LPs that accept wider markup.
| Model | How It Works | Favors |
|---|---|---|
| Price/Time Priority | Best price wins; ties broken by timestamp | Clients who value tight spreads; mirrors exchange logic |
| Weighted Scoring | Price + fill rate + latency + slippage combined into a score | Overall execution quality; balances multiple dimensions |
| Pro-Rata Allocation | Order split among LPs proportional to their quoted depth | Fill rate on large orders; distributes market impact |
| Round Robin | Rotates among LPs regardless of price | LP relationship management; equal flow distribution |
| Volume-Weighted | LPs receive flow proportional to historical volume/performance | Incentivizes LP competition; rewards consistent pricing |
Scoring Factors Beyond Price
Sophisticated execution engines evaluate LPs on multiple dimensions. These factors are weighted and combined to produce a composite score for each LP at the moment of order arrival. The weights themselves are the most important (and least disclosed) aspect of any broker's execution policy.
| Factor | What It Measures | Why It Matters |
|---|---|---|
| Quoted price | Best bid or ask at the moment of routing | Directly determines the execution price client receives |
| Historical fill rate | Percentage of orders the LP actually fills vs rejects | A great price is worthless if the LP rejects most orders |
| Average slippage | Difference between displayed price and actual fill price | Negative slippage erodes the benefit of tight spreads |
| Response latency | How fast the LP confirms or rejects the order | Slow LPs increase time-to-fill and exposure to market moves |
| Last look duration | How long the LP holds the order before deciding | Longer last look = higher reject risk during volatility |
Where It Appears in the Execution Stack
Benefits & Trade-offs
| Factor | Detail | |
|---|---|---|
| Best price routing | Price/time priority ensures clients get the tightest available spread | |
| Fill certainty | Multi-factor scoring can improve fill rates by weighting reliable LPs | |
| LP competition | Performance-weighted allocation incentivizes LPs to improve pricing | |
| Opacity | Scoring weights are rarely disclosed; clients cannot verify alignment | |
| Broker P&L optimization | Weights can be tuned to favor LP relationships that benefit the broker | |
| Complexity | More factors improve theoretical quality but increase system complexity |
Common Marketing Claims vs Reality
| Claim | Reality |
|---|---|
| "Best execution guaranteed" | Best execution is a regulatory obligation (where applicable), not a guarantee of best price. It means the broker must have a reasonable process -- not that every fill will be the market's absolute best. |
| "Price/time priority, same as an exchange" | Only true if the engine uses strict price/time with no secondary weighting. Many brokers use weighted scoring and describe it loosely as "price priority." |
| "Optimized for client outcomes" | Impossible to verify without seeing the actual scoring weights and their evolution over time. Ask for execution quality reports with LP-level fill rate and slippage data. |
What to look for in an Execution Policy
- Does the execution policy describe the allocation model (price/time, weighted, pro-rata)?
- Are the scoring factors listed and their relative importance explained?
- Does the broker publish execution quality statistics broken down by LP?
- Is there disclosure of how often scoring weights are reviewed or changed?
- Does the policy explain fallback logic when the primary LP rejects?
- Are there any conflicts of interest in how LPs are scored (e.g., affiliate LPs)?
See a Public Routing Disclosure Example
NDD.broker publishes detailed order routing and execution policy documentation, including LP composition, priority logic, and conflict mitigation. This serves as a reference implementation of the concepts described above.
Educational content only. This is not financial advice. Always consult qualified professionals before making trading decisions.