Smart order router (SOR)

DEFINITION of Smart order router (SOR)

Smart order router (SOR) is the automatic process in online trading, which follows a set of rules that look for and assess trading liquidity.

WHAT IT IS IN ESSENCE

They are systems to analyze the state of venues. And to place orders on the best available way. These systems are relying on the defined rules, configurations and algorithms.

SORs were first used as a key technology in the equities market. Today they are an integral part of most trading platforms across all asset classes.

Actually, the first use was in the USA, in the late 1990s. when the first instances of Smart Order Routers appeared.

Once alternative trading system (ATS) started to pop up in U.S. cash equities markets, smart order routing (SOR) became a fact of life for global agency broker Investment Technology Group (ITG).

They serve to tackle fragmentation of liquidity by analyzing the different offers and placing orders based on the best available option.

Most major institutional investors and brokers use a smart order router to automatically find the best possible prices for trades as quickly as possible.

The number of trading venues grows and the market becomes more complex. Hence, we can assume is that the SOR system will become even smarter and faster.

HOW TO USE

When data exists on multiple computers as a result of editing or data processing, subtle differences often arise.

Discrepancies can occur because of bugs, file format conversion idiosyncrasies, multiple edits by humans. Timeframe changes such as calendar updates also have influence.

For information that doesn’t change, such as historical data, SOR is the source of the original data.

And for information subject to change, such as a bank account balance, it provides the most current information.

It provides the most complete, most accurate and most timely data. This system has the best structural conformance to the data model. Hence, it is nearest to the point of operational entry and it can be used to feed other systems.