How a US stock order gets filled: exchanges, wholesalers and payment for order flow

Many people who buy shares through an app assume their order goes straight to the New York Stock Exchange or Nasdaq. The SEC’s own guide to trade execution says it does not. The order goes to the broker, and the broker decides where to send it. That decision affects the price you get, and it is shaped by commercial arrangements most customers never see.

This guide explains where US stock orders go, what the national best bid and offer (NBBO) is, how payment for order flow works, and which public reports let you check your broker. It does not forecast market prices or rule changes.

The broker’s choice of venue

According to the SEC, a broker handling an order for a listed stock has several options. It can send the order to the exchange where the stock is listed or to another exchange. It can send it to an off-exchange market maker that stands ready to buy and sell at publicly quoted prices. It can route a limit order to an electronic communications network that matches buyers and sellers automatically. Or it can fill the order from its own inventory, which the SEC calls internalisation.

Much of the market now trades away from exchanges. In a 2021 report, SEC staff said that less than 60% of overall US equities volume is typically executed on exchanges.

The wholesalers

For retail orders, the most important off-exchange players are large market makers known as wholesalers. When the SEC proposed changes to how retail orders are handled in 2022, it said retail brokers were routing more than 90% of individual investors’ marketable orders (orders meant to trade immediately) to a small group of these firms. Wholesalers typically fill the orders themselves, trading as principal against the customer.

The SEC staff report explains why they want this flow. Market makers lose money when they trade with better-informed traders, because prices then tend to move against them. Retail orders are usually small, unrelated to one another and less likely to predict the next price move. Market makers can therefore quote tighter prices for them than for the market as a whole. The staff called this practice of separating out retail flow “segmentation”.

Payment for order flow

Wholesalers typically pay retail brokers for the right to trade with their customers’ orders. This is payment for order flow (PFOF). The SEC staff report says the payments can create a conflict of interest for the broker, because routing decisions may be influenced by who pays most rather than who gives the customer the best price. It also notes that these payments are negotiated privately between broker and wholesaler, and that the rates can vary widely. Some wholesalers let the broker choose how much of the value goes to improving customers’ prices and how much the broker keeps.

Exchanges also pay for orders, in a different form. Many pay rebates to firms that post orders and charge fees to firms that take them, and some run retail liquidity programmes. Unlike wholesalers’ payments, exchange pricing is part of each exchange’s published rules.

The SEC’s 2022 proposal would have required many retail orders to be exposed to competition in auctions before a wholesaler could fill them internally. On 12 June 2025 the SEC withdrew that proposal, along with a proposed Regulation Best Execution, and said it did not intend to adopt final rules on them.

The NBBO and Regulation NMS

The reference point for almost every US stock trade is the NBBO. Each exchange has its own best bid (the highest price someone will pay) and best offer (the lowest price someone will sell at). Taken together across all exchanges, these make up the national best bid and offer. SEC staff explain that off-exchange market makers use these public quotes to set the prices at which they fill retail orders. They add that Rule 611 of Regulation NMS, the SEC’s framework for the national market system, generally prevents stocks from trading at prices worse than the NBBO.

“Price improvement” means a fill better than the NBBO, for example buying below the best offer. The SEC calls this an opportunity, not a guarantee. The NBBO also has limits. The staff report notes that it leaves out off-exchange liquidity and many of the best exchange prices, such as odd lots (orders for fewer shares than a standard round lot) and hidden orders. Price improvement figures measured against the NBBO may therefore overstate the real benefit.

The SEC adopted changes in 2024 meant to address some of this. They include a smaller round lot for higher-priced shares, the publication of the best odd-lot prices, a half-cent tick size for some stocks and lower caps on exchange access fees. Parts of this package have since been deferred by SEC exemptive relief, most recently in June 2026, so check the SEC’s site for the current status of each change.

Best execution

Wherever an order goes, the broker has a duty to seek the best execution reasonably available. The SEC explains that this means reviewing customers’ orders in aggregate and periodically assessing which venues offer the most favourable terms. Price improvement is one factor; speed and the likelihood of execution are others. No SEC rule requires a trade to be executed within a set time. In a fast market, the price you receive can differ from the quote you saw, slightly or by a lot.

The disclosures you can check

Two SEC rules produce public data on execution.

Rule 605 requires market centres to publish monthly reports on execution quality for each stock, covering how orders of different sizes were filled relative to the public quotes. The SEC amended it in 2024 to cover broker-dealers with 100,000 or more customer accounts as well as market centres, to add fractional-share and odd-lot orders, and to require a short summary report. After an extension from 14 December 2025, the compliance date was 1 August 2026. SEC Commissioner Mark Uyeda’s statement on the amendments explains why he supported them.

Rule 606 requires brokers to publish quarterly reports on where they route customer orders. Since amendments in 2018, those reports must also describe the terms of any PFOF and profit-sharing arrangements. According to the SEC, a customer can ask their broker where their individual orders were routed over the previous six months. Customers who place “not held” orders, where the broker has discretion over price and timing, can ask for a more detailed report.

What a retail trader can do

• Read your broker’s Rule 606 report. It shows where orders go and what the broker is paid for sending them.
• Look at the Rule 605 summary reports of the broker and the venues it uses, including price improvement and speed.
• Ask your broker about its PFOF, internalisation and routing policies, as the SEC suggests. When comparing brokers, ask how often each gets price improvement.
• Use limit orders when the price matters. A market order in a fast market can fill well away from the last quote.
• Remember that the fill is not the end. Since 28 May 2024, most broker-dealer securities transactions in the US have settled one business day after the trade date (T+1).

None of this tells you whether a broker is good or bad. It does show how your order is handled and what incentives sit behind that handling.