Okay, then perhaps it is a good thing. After all we need some one coming in to upset those traditional options exchanges and associated special interest groups. These guys just sit there and try to earn easy low risk money forever in the way like old days. Their edges are their books of rules. PIG.
MSKL, I think I understand now. If I am looking at an option spread at 2.85 x 3.10, and I want to put in a bid at 2.90, then the MM can put in an "invisible" bid at 2.91 and snag off any order that might have come my way? If that is really the way the PIP thing works, then it really sucks. I don't know too much about how the BOX is supposed to work, but I think that if I am the first to post a bid at 2.90, then I should get the first matching order that comes in. If someone wants to best my order, then make them put up another nickel. OR Pennies for one, pennies for all. I think I prefer the nickles, Problably willl insure better liquidity. Let us know if we can help in your quest for fairness.
Tony I don't think it works that way. I think if market is 1.50 bid 1.55 offer, and you put in an order to buy 1.55, everyone mkt maker including your broker can "penny" the offer for 3 seconds and sell it to you at 1.52. In theory you win coz you paid less than NBBO, they win coz they are able to get off a sale , the loser is the guy who was offering at 1.55 coz they got pennied. Is it fair, I don't see why not. That is just competition right. In an open outcry market if I am bidding 15 and the guy next to me opens his mouth and bids 16 I shut up. When he get hit I shout 15 bid again. They can only penny you during the PIP period, and only by your broker and the MM assigned to that option class. Hey getting pennied it not bad if they only have 3 seconds to do it, Try the phlx, 2 minutes of "free look"
Tony is RIGHT!! If the guy bidding (outside liquidity provider) is constantly pennied (shut out at $1.50), then he will no longer bid 1.50 and the real bid may only be 1.30 and you will probably get filled at worse price. (maybe 1.31 or 1.32) Before the ISE, spreads were huge - why?? Very few liquidity providers!!! It's pretty simple, the more liquidity providers, the tighter the spreads, the better the market. PIP will reduce the number of liquidity providers if all participants can't see the order flow. Now the good news. My constant hounding of the BOX has finally paid off. They are now willing to show the customer side of the PIP in the posted quote. However, there is one snag. OPRA claims they may not be able to handle the extra bandwidth required to broadcast PIP's to the marketplace. I'm currently working on them. If you guys really care about this issue (more visibility) then I suggest you write to the SEC when the rules are published for comment and let them know how important it will be to see the customer side of the order. I'll let you know when. If we can get to see the PIP's, then the BOX will be the best Exchange for everyone!
oh, and the PHLX will soon introduce customer - customer auto order match. The technology is in place, they are simply waiting for the SEC to approve the rule. Look for this in FEB. And that would mean that any liquidity providers who are bidding $1.50, can't be pennied if another customer order is entered to sell at $1.50. An auto execution will take place for both sides. This already takes place on the PSE, ISE and CBOE. You are rewarded for posting the best market ($1.50 bid).
And did you realize that if the best bid ($1.50) was on another market (ISE) then an invisible PIP can still take place on the BOX. There is no incentive to post your best market at the BOX. So what happens - the ISE will lose order flow for sure. Currently, the "best" price generally attracts the order flow - with invisible PIP's, LESS order flow will arrive at the ISE. So, in order to get that volume back, expect other Exchanges to come up with similar PIP rules. And in each case, there is less of an incentive to show your best market (if the PIP is invisible to outside participants). Wider spreads will result.