Smart Order Routing
Automated technology that finds the best execution venue for a trade across multiple markets.
What is SOR?
Smart order routing (SOR) is an automated order management system that analyzes available liquidity, pricing, and execution costs across multiple trading venues — including stock exchanges, ECNs, dark pools, and market makers — to find the optimal destination for each order. SOR algorithms evaluate factors such as the NBBO, venue-specific rebates and fees, historical fill rates, and latency to route each order to the venue most likely to provide the best execution. Broker-dealers are required under Reg NMS best execution obligations to use reasonable diligence in routing orders, and SOR technology is the standard mechanism for fulfilling this duty. Both retail and institutional order flow is now routed almost entirely through SOR systems.
Example
When a retail investor places a market order to buy 200 shares of Tesla through an online brokerage, the broker's SOR system simultaneously queries NYSE, Nasdaq, Cboe, and potentially internalizers to compare available prices and liquidity in real time. It routes to the venue offering the best price at that millisecond — often providing price improvement over the displayed NBBO at no additional cost to the investor.