Snowbirds in Securities Trading: Canadian Brokers' U.S.-Bound Order Routing

We study a unique data set of all client trades that the six largest Canadian dealers sent to U.S. equity markets in 2014-2015. Contrary to the public perception, Canadian dealers use U.S. markets only lightly and send less than 5% of their $-volume to the U.S.; on 60% of security-day observations, they send no order flow to the U.S. Usage of U.S. markets differs significantly among the dealers: one uses almost exclusively exchanges, but most trade only off-exchange, in so-called dark markets or directly with other dealers. A strong factor that influences the U.S.-bound routing decision is a broker's volume: the larger the volume, the more likely it is that the broker uses U.S. markets. Overall, the data indicate that brokers' U.S.-bound routing decisions are driven by the size of client order flow which requires access to the additional liquidity offered by U.S. markets. For a 3-month period, one dealer made extensive use of U.S. wholesalers, and we find no evidence for a negative impact on the trading costs for its Canadian flow.