Order based versus level book trade reporting: An empirical analysis

The NYSE and NYSE American markets report trades based on the size of the marketable order, called Level Book reporting. All other U.S. exchanges report trades based on the resting counterparty's size, called Order Based reporting. Using ITCH data timestamped to the nanosecond, we show that Order Based reporting often results in the reporting of marketable orders as multiple trades of smaller size. Marketable order sizes cannot be recovered with millisecond time stamps but can with microsecond time stamps. The Order Based convention significantly impacts standard empirical methods. Depending on the research design, researchers may need to control for the trade reporting method.