Smart Order Routing (SOR); From Revolution to Evolution in the Search for Liquidity and Alpha

Smart Order Routing (SOR) has ebbed and flowed as a topic of interest in the financial industry. Because the functionality has become commonplace in the market, its presence in institutional trading platforms has nearly become an afterthought. But its necessity is without doubt, especially in light of the exponential growth of electronic trading, proliferation of order types and instructions, and fragmentation of liquidity.

Revolution

The launch of the first smart order router was a revolution in trading, allowing traders to access liquidity across multiple markets and get size done. Independent smart order routers addressed intermarket linkages years before regulatory changes made this a requirement.  Early movers in the smart order routing space grew tremendously as a result of their pioneering work.  In this early stage, the existence of the tool alone was a large part of its advantage.