Yes, you would have to trade as a MM. The PIP is the problem. IMO, it is very unfair to outside liquidity providers. Oh, if you don't know already the BOX will also have obvious error rules similar to the ISE so crossed trades can also be cancelled (and I only say this because I know you look for these kinds of trades) I think initially you will be ok to trade as a customer but as internalization becomes more popular, becoming a MM will be a priority. I believe you have to become a BD. And there are some problems with this. As much as I love IB and their ideals, I'm a little disappointed that they would be part of such an Exchange (internalization exchange). However, we will never agree on everything.
http://www.bostonoptions.com/pdf/BOX_rules_web.pdf only 133 pages!! In particular pages 57 - 62 PIP rules - look at the examples they give on their website http://www.bostonoptions.com/index_launch.php and note that with PIP, outside participants will never know when PIP's take place. For my views on PIP: http://www.interactivebrokers.com/discus/messages/6/7434.html?1042101599
I agree, if I join a bid or an offer the market maker has three seconds to improve the price. If Smart routing is going to route to BOX first then I may have to go back to self directing my orders and paying the cancellation fees. If the market is 40 bid 50 offered and I put in bid at 45 am I first? Can the market maker still bid over by 1 cent even though I am first?
yes, the market maker can bid .46 and you would not get any marketable trades. And to top it off you would not see the .46 bid via the NBBO. And even if you bid on another Exchange (ISE) the marketable sell order can still be directed to the Box for a PIP and trade at .46 and you would also be shut out. ie - in many cases in todays market the order is directed to the Exchange with the BEST market. If BOX rules are approved, this will happen less often as some will direct/internalize order flow to the BOX. And this is why one should expect these PIP rules to pop up at other Exchanges making the market WORSE for all outside participants.
CBOE still market leader, but competitor nipping at heels January 9, 2003 BY DAVID ROEDER Business Reporter The Chicago Board Options Exchange still can claim to be the nation's leading options market but, if trends continue, that title soon will need an asterisk. At the end of 2002, the CBOE clung to its lead in market share for a critical portion of the business. The International Securities Exchange, which is less than three years old, is running even with the CBOE in its volume of the most actively traded options on individual stocks. Unlike the CBOE, which must shoulder the expense of a trading floor, the New York-based ISE is strictly an electronic operation. Its success has given the CBOE fits and driven home the challenges that electronic trading poses to a traditional exchange and to a way of life in Chicago's markets. Traders attributed the ISE's success to two factors. They said the "spreads'' on the ISE's market, or the difference between what sellers are offering and buyers are bidding for each option class, are usually tighter compared with the CBOE's prices. In addition, execution times on the ISE system tend to be faster, they said. The difference is in fractions of seconds, but that can be important in volatile markets. James Gray, president of G-Bar Limited Partnership, a firm that's a CBOE market maker, said many traders have found they can quickly hedge risks or take new trading positions on the ISE's computers. The principal advantage the CBOE retains, he said, is the depth of its markets, reflecting both the number and size of its quotations, Gray said. Steven Sears, research director at the ISE, said leading investment banks such as Bear, Stearns & Co.; Morgan Stanley, and Goldman, Sachs & Co. have shifted business from the established options exchanges, the biggest of which are the CBOE and the American Stock Exchange. "They've gotten used to our point-and-click functionality. We're also a cheaper place to trade,'' he said. Goldman and Morgan are investors in ISE, as are such discount brokerages as E-Trade, Ameritrade and Scottrade. CBOE executives said they're expanding the exchange's own electronic system to meet the challenge. The system is limited to early-morning trading before the floors open, but it's been modified to interact with the floor. A critical point will come in May, when the CBOE is scheduled to let market makers use the system to post competitive quotes, an innovation designed to counteract the ISE. In overall options trading, the CBOE is still the clear leader, with 2002 volume of 267.6 million to ISE's 152.3 million. But that's because of its dominance in index options, including the popular Standard & Poor's 500 and 100 and the Nasdaq 100. The ISE has no index options business. The battle is being fought within options on equities, for which the CBOE reported a 2002 volume of 173.2 million contracts. Data from Sears show that for options on more than 500 stocks that are traded both at the CBOE and the ISE, the CBOE's 2002 market share was 25.7 percent, just ahead of ISE's 25.3 percent. A year ago, the ISE's market share was about 18 percent.
Hi, When will BOX open for business ? A lot of things look good on paper. However, we need to try it out for at least several weeks to understand the Pros and Cons.
They are months away still. The rules have not been approved by the SEC. I would guess the earliest would be march/april.
Will BOX make the current outrageous long list of exchange rules/restriction (on retail customers) shorter? Thanks.