Occam, you might hear IB claim that they don't internalize on options. This may be correct to some extent in that in order to send an IB customer order to Timber Hill, IB will first route that order to an exchange where TH is "more likely to trade with the order." So I suppose IB might claim that since an exchange is being used during this transaction, then the arrangement does not constitute internalization. Maybe this means they don't have to list TH on their 606. I don't know. IB goes on to note that they will, to be fair, match whatever rebate the customer may have gotten had IB not decided to route the order to an exchange where Timber Hill is more likely to trade with the order. So my guess on this is that IB certainly maintains a record of which IB orders (even options orders) were executed by TH, despite the fact that such arrangements are invisible on the IB 606 reports. For more on this, see the section: "Routing to an Options Market where an Affiliate is Active." https://www.interactivebrokers.com/...rmSampleView?ad=order_routing_disclosure.html
I'd like to think that's true, but IB's routing report states: This looks like B/D internalization to me, given that IB and Timber Hill have the same owner. But granted, there's a lot of moving parts here (e.g., directed orders such as the one BATS allowed then withdrew). Or is the language in the routing report is out of date? If so, why not simply get it changed? I give much greater credence to what's stated on a mandated disclosure than I do to a post on a message board.
So multiple exchanges are showing the same quote and presumably any order to either of the exchanges will get the same fill. Should IB route it where it has a higher degree of certainty that it will get filled or should it send it where it gets the least benefit? For the naysayers, there is no one forcing you to use SMART as IB does allow you to route to any of the 10 or so option exchanges it offers directly. Our clients know that our options routing is excellent and the proof is in the pudding. I think way too much time is spent worrying about who is on the other side of the trade as opposed to focusing on the quality of the execution.
jeb9999, that IB sends options orders to exchanges does not automatically mean that IB is looking for the best fill for you. For example, you should understand that IB actually collects $1.00 per contract from Timber Hill whenever IB sends a customer order to Timber Hill via the BOX exchange. But there's a catch. Before they pay the $1 to IB, Timber Hill better not have to pay the IB customer better than NBBO due to one of BOX's unique PIP (price improvement) auctions. It's a cozy setup: the B/D sends a customer order to an affiliate via an exchange co-founded by the B/D and then collects a very generous payment-for-order-flow from the very same affiliate. But only if the customer does not get a better deal than they would anywhere else. And you slam OptionsHouse for not sending options orders directly to an exchange according to their 606. As if sending an order directly to an exchange protects a customer from hidden internalization. See the section "Affiliate Relationships "For Boston Options Exchange orders, Timber Hill pays IB $1.00 for eligible contracts executed against Timber Hill (excluding contracts that are executed at better than NBBO)" http://www.interactivebrokers.com/download/3Q_2011_IB_ORDER_ROUTING_REPORT.pdf
nice try, the full context: Affiliate Relationships: As specialist on various options exchanges, IBâs affiliate Timber Hill LLC may be responsible for allocating payment for order flow that is generated in its assigned options classes, depending on the design of the applicable exchangeâs SEC-approved payment for order flow plan. As much as consistent with these plans, Timber Hill pays such funds to Interactive Brokers. For Boston Options Exchange orders, Timber Hill pays IB $1.00 for eligible contracts executed against Timber Hill (excluding contracts that are executed at better than NBBO).
Jeb your criteria,evidently, for best firm for options order execution is the one that has the most choices for option routing. yet that doesn't mean they actually execute the best. although this does get start to get off topic,when IB can offer similar analytics and do multi leg orders as well as TOS or maybe Trade Monster, then they might be the more "obvious" choice
def, the statement you cite seems to contradict an assertion made in an article about IB in the WSJ. http://online.wsj.com/article/BT-CO-20110408-710121.html "Unlike other brokerage houses, Interactive Brokers makes a point of not routing customer orders to banks or high-speed trading firms that match up transactions internally or run private trading venues." It appears that IB does route customer orders to its own ATS and to an exchange it co-founded in order that customer orders can be matched to IB's market-making affiliate. Full text of the article is here: By Jacob Bunge Of DOW JONES NEWSWIRES The chief executive of Interactive Brokers Group (IBKR) said his company has muscled into position alongside far larger rivals like TD Ameritrade Holdings (AMTD) and Charles Schwab Corp. (SCHW) by zeroing in on the industry's most active investors. Interactive Brokers' overall level of trading now is on par with that of much-larger rivals, according to Chief Executive and founder Thomas Peterffy, though the Greenwich, Conn.-based brokerage counts far fewer customers. "Our business has grown much faster than theirs," noted Peterffy, who said he has recruited sophisticated customers by ensuring their trades are handled more efficiently than at other brokerages. Interactive Brokers, which estimated that it added 10,000 new accounts in the first quarter, is emphasizing growth in its brokerage segment as its core business of electronic market-making in stock-options has been challenged by more nimble competitors and dwindling market volatility. The company last week reported 426,000 daily average revenue trades for the month of March. TD Ameritrade and Schwab, which will release March figures later this month alongside first-quarter earnings, reported February DARTs of 453,000 and 478,000, respectively, though Schwab also counts commission-free trades in its total. Interactive Brokers' volumes are driven by a base of about 168,000 customer accounts, which include semi-professional traders and small hedge funds. Schwab counts about 10.2 million total accounts and TD Ameritrade about 8 million, including many more individual investors making only a few trades per day. A representative of TD Ameritrade said the company has "a great offering for active traders and equally for people in their long-term money." A representative of Schwab declined immediate comment. Peterffy said in an interview that his company has sought to offer cheaper commissions and lower financing costs than competitors, but the quality of trade execution is the issue that most resonates with his clientele. Unlike other brokerage houses, Interactive Brokers makes a point of not routing customer orders to banks or high-speed trading firms that match up transactions internally or run private trading venues. All Interactive Brokers customer orders are executed on exchanges, which are sometimes avoided by brokers and traders that see alternative trading systems and internal trading as a way to avoid paying fees charged by exchanges. Firms also stand to collect revenue by selling order flow to the banks and trading shops that seek to trade against it. "If you have very good routing software, you can get on the exchanges executions that are as good or better" than those offered by internalizing customer orders, where both the internalizing firm and the broker will make money on the execution of the trade, Peterffy said. Firms that preside over such internal trading advocate that the process can produce better prices than carrying out each transaction on an exchange. Knight Capital Group (KCG) estimated the function saved customers $215 million in 2010. Peterffy argued that such estimates ignore instances where the off-exchange trade price ended up being worse than usual. Interactive Brokers in recent months has taken steps to trim its electronic market-making business, which has struggled over the past year as its standing obligations to buy and sell a broad range of options on multiple exchanges has made it difficult to compete with smaller trading firms that aren't encumbered with the role. Peterffy said Interactive Brokers has ceased its market-maker function in some lightly traded contracts and widened its price spreads in others, but the firm will stay in the business because the order-routing technology involved is critical to its separate brokerage unit. "We think there's a chance the [Securities and Exchange Commission] will do some new rules that will reward liquidity providers in the course of this year," he said. -By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com --Brett Philbin contributed to this article.
I use IB for SPX and RUT credit spreads / iron condors. I'm rather satisfied with them, since -especially with RUT- it's often possible to get filled near the ask. What irritates me is that sometimes, when I place an order between the spread and it doesn't fill quickly, it isn't represented as new ask, though it remains active (and possibly fills at a later time). Entering option combos for CL is cumbersome, though, and for 6E spreads the market is rather thin (which probably isn't IB's fault).