Aggregation and allocation of orders - COBS Provision

An aggregated order consists of a group of orders from different clients to buy or sell a specific security which are bunched together by a broker and handled as a block. That block might itself be "worked" or executed in smaller clips on different exchanges and venues in shapes and sizes that do not correspond with the shapes and sizes of the original order. The clients are each given a single blended price of the execution of those orders on the exchange.

Example

Broker receives the following client orders at market, almost simulataneously, but infinitessimaly in this order, in Vodafome plc, a mobile foam company:

• (a) Client A for 100 securities;
• (b) Client B for 80 Securities;
• (c) Client C for 20 securities,

For the less mathematically inclined, that makes a total of 200 securities.

The Broker goes to the various venues available to it can see the following offers: (i) 45 Securities on Exchange X at 99; (ii) 120securities on MTF Y at 100, and (c) 45 Securities at 101 in its internal order book.

Broker hits all these offers and returns to camp triumphantly with 200 Vodafome securities, and allocates them to the clients at 100 each, being the blended price.

Advantage and disadvantage

The question arises as to whether anyone has been disadvantaged here. On one hand, Client A might say "look: I was first: You could have filled my order on Exchange Y and from MTF Y (ok - it would have been a partial fill - but still) and obtained me a blended price of 99.55".

Now arguably client Y's order couldn't have been filled at all because the shapes don't fit. And through time, on average, client will benefit as frequently as it will lose.