What is the arrival price benchmark and when is it used?

Question

AcadiFi · Accepted Answer

Arrival price is the mid-quote (or last trade) at the moment the order *arrives at the trading desk*. It anchors the execution evaluation to the start of trading rather than the moment the portfolio manager made the decision.

The relationship: decision price → [delay] → arrival price → [impact + timing] → execution price → [residual drift] → closing price.

**Why execution desks prefer arrival price as their benchmark**:

1. It isolates what the trading desk can actually control. Delay cost between PM decision and order entry is a PM/compliance issue, not an execution skill issue.
2. It's precise — the desk has a timestamp when the order is received and a verifiable mid-quote at that instant.
3. It scales across strategies. A desk trading for multiple PMs can evaluate each ticket consistently.

Example: trader Javier Solano receives an order at 9:45 AM when mid is $88.40. He executes across the day, average fill $88.62. Arrival price shortfall = $0.22 per share against arrival. The PM's separate delay cost (from their 9:10 AM decision at $88.28) is $0.12 — that goes in a different bucket.

**When it's used**:

- Algorithmic execution benchmarks: most IS-style algos target arrival price.
- Broker transaction cost analysis reports.
- Internal scorecards for execution traders.

**Limits**:

- Ignores opportunity cost on unfilled shares (better captured in full IS).
- Can be gamed by delaying the order to pick a 'favorable' arrival timestamp — shops guard against this with strict timestamping rules.
- Doesn't incentivize patience if patience saves impact but costs timing.

Top execution teams report against both arrival price and full IS to balance these views, reviewing outliers with the PMs who initiated the trades.

What is the arrival price benchmark and when is it used?

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