SOR vs Single-LP Routing
Smart Order Routing (SOR) evaluates multiple venues in real time to find the best execution for each order. Single-LP routing sends everything to one predetermined provider. The choice between them defines the ceiling of execution quality a broker can achieve.
| Dimension | Smart Order Routing (SOR) | Single-LP Routing |
|---|---|---|
| Routing logic | Evaluates all venues per order based on real-time conditions | Fixed route to one pre-configured LP |
| Venue selection | Dynamic — best venue per order, per instrument, per moment | Static — same LP for all orders |
| Price optimization | Routes to the LP with best current price and depth | Accepts whatever the single LP offers |
| Fallback on rejection | Automatically cascades to next-best venue | No fallback — rejection means failed order |
| Order splitting | Can split large orders across venues to minimize impact | Entire order goes to one venue |
| Technology requirement | Sophisticated algorithm with real-time market data | Simple routing table |
| Best execution compliance | Strong — demonstrates multi-venue evaluation | Weak — no evidence of venue comparison |
| Fill quality | Higher fill rates through fallback logic and venue selection | Fill quality entirely dependent on single LP |
Routing logic
Smart Order Routing (SOR)
Evaluates all venues per order based on real-time conditions
Single-LP Routing
Fixed route to one pre-configured LP
Venue selection
Smart Order Routing (SOR)
Dynamic — best venue per order, per instrument, per moment
Single-LP Routing
Static — same LP for all orders
Price optimization
Smart Order Routing (SOR)
Routes to the LP with best current price and depth
Single-LP Routing
Accepts whatever the single LP offers
Fallback on rejection
Smart Order Routing (SOR)
Automatically cascades to next-best venue
Single-LP Routing
No fallback — rejection means failed order
Order splitting
Smart Order Routing (SOR)
Can split large orders across venues to minimize impact
Single-LP Routing
Entire order goes to one venue
Technology requirement
Smart Order Routing (SOR)
Sophisticated algorithm with real-time market data
Single-LP Routing
Simple routing table
Best execution compliance
Smart Order Routing (SOR)
Strong — demonstrates multi-venue evaluation
Single-LP Routing
Weak — no evidence of venue comparison
Fill quality
Smart Order Routing (SOR)
Higher fill rates through fallback logic and venue selection
Single-LP Routing
Fill quality entirely dependent on single LP
How SOR Optimizes Execution
A SOR algorithm receives each incoming order and performs a rapid evaluation of all connected venues: current bid/ask prices, available depth at the target price, recent fill quality metrics, LP latency, and rejection history. Based on this evaluation, SOR routes the order to the venue (or combination of venues) expected to produce the best execution outcome. This happens in microseconds and is repeated for every single order — making it fundamentally dynamic rather than static.
The Limitations of Single-LP Routing
Single-LP routing means the client's execution quality ceiling is determined by one provider. If that LP widens spreads, the client gets wider spreads. If the LP goes down, execution stops. If the LP applies aggressive last-look, the client experiences higher rejection rates with no alternative. There's no competitive pressure on the LP to improve because it knows it's the only option. This is why SOR exists: to create LP competition at the order level.
SOR Sophistication Levels
Not all SOR implementations are equal. Basic SOR may only compare prices. Advanced SOR considers depth, latency, recent fill quality, and market conditions. The most sophisticated SOR implementations learn from historical data and adapt their routing logic over time. Some SOR engines also handle order splitting — dividing a large order across multiple venues to minimize market impact. The quality of a broker's SOR is one of the most important differentiators in NDD execution.
Verdict
SOR is categorically superior to single-LP routing for best execution. It provides dynamic venue selection, fallback logic, competitive pricing, and the ability to optimize at the individual order level. Single-LP routing should only be used when there's a specific strategic reason to access one venue exclusively.