There's no money in proving that different brokers have varying execution quality, and it's not a regulatory requirement to execute instantaneously. I'm not sure how Nanex figures into it; there's nothing nefarious involved.

If I am in New York and I send a limit buy order to Schwab that is two cents through the offer, Schwab may route my order to a market-maker in Chicago who uses a decision model to either take the other side of my order on the offer, or post my limit order to the exchange with the best offer. Let's say the market-maker doesn't want to sell me the security and routes it to an exchange in Miami. By the time he posts the bid, the offer may have moved and my limit order may no longer be marketable. That doesn't mean Schwab broke the law. Routing orders between computer systems and making risk decisions takes nonzero time, and factors like latency and exchange fees can affect where the order goes and when it arrives.

Let’s be clear are you sending routed orders in this case?

Are you suggesting that limit orders are filling but at a different price than expected or not filling at all?

The reason Nanex is important is that they’ve made bank on proving that risk systems and broker latency don’t matter when enforcing reg nms.

Neither does order volume. If you can accurately track execution to the point where you can see slippage (not on the broker report cards) you can make money on that info.

None of that is to say different brokers don’t have different slippage just that in aggregate if you can accurately calculate it you a) have no business trading through a retail broker (and you know it) and b) there is money to be made in compliance that doesn’t take on trade risk.

I use two brokerages and I almost exclusively trade US listed equity options. That's why it's easy to know if I'm getting good liquidity or not; the price doesn't move as much and the spreads are far wider than cash. If I use the one with PFOF, on rare occasions it takes a minute or more for my order to show up on the screens. The other one is very fast with SOR but it doesn't always get a high percentage of the displayed size. When I worked at a shop I got most of the displayed size pretty much all the time because the SOR was way better.

Analogous to the PFOF situation...if a hedge fund sends a limit order to a bank the NBBO may have moved unfavorably by the time it gets sent down to a floor broker. That may be horrible execution but it's not illegal for a floor broker to suck at picking up the phone promptly.

I guess my point is that it doesn't take long to figure out which brokers can improve your committed price, which floors participate aggressively, which electronic crosses break you up, etc, and that knowledge can affect customer fills. But I get what you're saying and you're right that people could monetize it if they had hard quantitative slippage data. That wasn't really what I was describing.

>The reason Nanex is important is that they’ve made bank on proving that risk systems and broker latency don’t matter when enforcing reg nms

I don't understand what you mean by broker latency and Reg NMS...latency between different legs of SOR can affect execution even without a trade-through violation by causing the offer on Exchange B to fade if an order routed to Exchange A crosses the betters there well before the bid destined for Exchange B arrives. I think I'm missing a piece of the puzzle here.