Originally posted by def Well, if it is mandated by the SEC and they offer it, I'll take it. All I'm saying is that all these pseudo market makers that complain the most are trading off the floor and circumventing the rules. If this rule didn't exits, I wouldn't care what they did... Not all options brokerages firms are fully electronic like IB. And not all firms ignore the customer's order flow information, eventhough they could make a killing off of it. One of the things this rule does is that it prevents broker/dealer orders front running large retail orders. Just providing strict time priority on an electronic platform will not even the playing field. Not until you eliminate all middleman and outlaw the practice of paying for order flow... and that will never happen. The broker/dealers are the ones controlling the exchanges. I know that not everything is fair on the current exchanges. But I don't think creating another exchange is the answer. Maybe "they" created Box because of linkage. Maybe "they" will create so any fragmented markets so that it will be technologically impossible to have true price time priority. For the Box exchange to be our saviour, providing everyone true price/time priority AND NBBO, all other exchanges will have to close down. Fragmentation just helps the broker/dealers. It creates a situation the Nasdaq MM's enjoyed for years. I agree a true playing field would be nice. But knowing too much about how the broker/dealers behave in the equity(not just equity options) side, I'm saying Box is not the answer. I wish Timber Hill would have put their efforts in fixing what's broken and not in creating further fragmentation in the market. Until then, I'll just do majority of my trading on the electronic futures market. And for all you knowledgeable posters on this subject. Face it. You keep trading options BECAUSE of the inefficient in the market. If that was not the case, you would be off trading the eminis.
How do traders off the floor circumvent the rules? It is illegal to "act as a market maker" off the floor. You can't enter orders that continually move with the marketplace. It is illegal on all five option exchanges to constantly gain priority by jumping on the bid/ask. You also can't enter two sided markets. What we do, is we compete with the guys on the floor providing more liquidity to the marketplace. The Exchanges hate us for this and this is why they continually come up with rules to prevent competition. The Exchanges are allowed to buy customer order flow and then they prevent outside participants from trading that order flow. They also want to be able to advertise that they will honor the NBBO but the reality is they only want "dumb" orderflow. There should never be two sets of rules for customer order flow. The ISE was the market that actually forced the four existing exchanges to multiple list. This competition has improved the market greatly. The BOX could take this competition to the next level, an actual level playing field. Whether or not client priority would exist is up in the air. But all I care about is being able to trade the price quoted. I have no problem when Exchanges turn off their auto execution systems when a DPM/specialist/market maker has crossed a market but they should never deny access when another customer order locks/crosses the market. Until then, some market centers are set up like casinos................
Exactly which rule(s) are we violating in your mind? You actually got that right, the edge is identifying inefficient markets and the experience to capitalize on it. What makes you think we don't?
Are you aware that there are 3,000,000+ crossed/locked quotes in the option market on a typical day? Some strikes cross/lock 500+ times a day; and some strikes are locked/crossed for hours. This is not an accident; the MM will keep these strikes locked/crossed allowing the orders to kick out of the system, and cherry pick the ones they want. Try getting a cancel back from them when you are on the wrong side. Try hitting both sides of a crossed/locked market in a fast moving underlying; the right side won't fill and they won't cancel; the wrong side will fill and you are not getting out until it hits the bottom and starts to turn and then the right side will fill at the exact worse time repeating the process. The best example I remember was that kid posting news story a year or so ago; we were on the right side with $50K in profits on the screen that never filled, hit the sister company at the turn on the wrong side, instant fill, could not get a fill to cover, net result was down $(12K) in three minutes. If an exchange posts a price, they should be obligated to fill the posted quantity without exception, otherwise it is a bait and switch game, sanctioned by the exchanges/SROs and rubber stamped by the SEC. The intentional holding of cancels, waiting for the underlying to turn, is probably the next greatest problem. It is funny how you can get a cancel instantly when it is beneficial to them, but their system just is not efficient enough when it is on your side. Allowing fills on orders that are minutes old because of "too late to cancel" is criminal. And they call us "Bandit Traders" ...
Metooxx, I am totally in agreement with you. The fact that I trade as a customer and not a market maker or broker dealer and seeing offers and bids faded (in unlocked, uncrossed, not fast moving markets) is also frustrating, too.
I don't agree that an Exchange should be obligated to fill the quantity without exception. THAT IS INSANE!! (Even I would never expect this). In most cases when a market maker/dpm/specialist PRICE crosses a market it is the result of a technical problem. Every day you see an Exchange have a problem. many times the problem arises from an incorrect quote in the Underlying or their quote for the underlying freezes. eg. If IBM is misquoted by an ECN or NYSE at $10, do you actually expect to buy the $80 calls at .10. YOU HAVE GOT TO BE KIDDING!!!! Who would make markets under those conditions?? If a market maker locks a market then I think it is fair that they honor the quote but there should be exceptions in the case of crossed markets. In the last couple of weeks the Nasdaq has had some problems sending out trades which have caused some crossed markets. It is obvious when this happens (as all the strikes are crossed) and you are insane to actually send an order in such cases and even more crazy to expect a fill. I rarely send orders when the market is crossed for the reasons you mentioned. Most of the time when a market is locked /crossed it is the result of a client order resting in the book. I would agree that the MM/DPM's actually want the market locked/crossed so they can deny you access. It is exactly this situation where we are getting hosed. We should have the same access as the guys on the floor to the customer order book. The cancels are also a problem. And these are the exact issues that we should fight for. PLEASE don't say we should expect fills when there are technical problems!!!!!!!!!! Yes the Exchanges complain alot about us. Perhaps it is warranted if we have guys sending orders to buy IBM $80 calls at .10. However, the Exchanges also say that, "all we do is look for crossed markets" which in reality is exactly what the traders on the floor do. I just want unconditional access to the client order books. I'll give you an example of what happens to me many times a day. I will see a client order resting in the marketplace that I would like to trade against the stock. However, I will not send an order there because I won't get an auto execution. And I will only get filled via the manual proces if the market moves away from me. Thus, I don't send the order. And many times that resting order never gets filled because the underlying eventually moves away from that price. The result being, having two clients with the exact opposite order yet no trade ever takes place. What kind of market is that?? To summarize: 1) I think auto executions should be on all times when the market is neither locked/crossed. 2) Auto executions should be available against ALL customer orders resting in the order book even if that market is locked/crossed 3) Market maker prices should only be auto executable if the market has a spread or if it is locked. Crossed market should be handled manually. I could possibly see forcing auto executions in such circumstances where the market stays continually crossed without any technical problem...... Other problems in the market: 1) Limit orders on many Exchanges do not immediately appear in the market. 2) The quote size the Exchanges sends out is actually wrong many times. The PHLX often displays a quantity of 10 for all customer orders. I have found that if there is only 2 contracts wanted (the PHLX displays 10) and you try to sell 10 then you often only get 2. If they want to simply give you what is there then they should display what is there. In other cases there could be an order for 500 contracts yet they simply show 10 which is very misleading. The PSE also displays size similarily. They often display 20 contracts only. Lets fight for what is fair!
QUOTE]Originally posted by mskl I don't agree that an Exchange should be obligated to fill the quantity without exception. THAT IS INSANE!! (Even I would never expect this). [/QUOTE] Disagree, they post, they should trade it; i.e., futures markets. We are all big boys, if I send in an order with the wrong price, or size, they will pick me off, that is the game. QUOTE]Originally posted by mskl In most cases when a market maker/dpm/specialist PRICE crosses a market it is the result of a technical problem. Every day you see an Exchange have a problem. many times the problem arises from an incorrect quote in the Underlying or their quote for the underlying freezes. eg. If IBM is misquoted by an ECN or NYSE at $10, do you actually expect to buy the $80 calls at .10. YOU HAVE GOT TO BE KIDDING!!!! Who would make markets under those conditions?? [/QUOTE] Disagree, quotes are generated by the auto quote systems based on a valuation model, with different inputs @ each exchange. By moving the IV input you can lock/cross at will. That is what is going on here. Your example is a bit extreme, that situation is less .25% of all occurrences of locked/crossed markets in a day; however, in that example I would agree that a price adjustment is warranted, even in the case of a limit order, but not a bust. QUOTE]Originally posted by mskl If a market maker locks a market then I think it is fair that they honor the quote but there should be exceptions in the case of crossed markets. [/QUOTE] Agree, except include crossed, same problem. Now try to enforce it. QUOTE]Originally posted by mskl In the last couple of weeks the Nasdaq has had some problems sending out trades which have caused some crossed markets. It is obvious when this happens (as all the strikes are crossed) and you are insane to actually send an order in such cases and even more crazy to expect a fill. [/QUOTE] Agree. QUOTE]Originally posted by mskl Most of the time when a market is locked /crossed it is the result of a client order resting in the book. [/QUOTE] Disagree, if that truly was the case, it would take all the wind out of their sails in using the argument that it hurts them. There is no reason why they would care if you hit a mispriced customer order. QUOTE]Originally posted by mskl PLEASE don't say we should expect fills when there are technical problems!!!!!!!!!! [/QUOTE] I did not say that, however, when was your last bust because you had technical problems? QUOTE]Originally posted by mskl I'll give you an example of what happens to me many times a day. I will see a client order resting in the marketplace that I would like to trade against the stock. However, I will not send an order there because I won't get an auto execution. And I will only get filled via the manual process if the market moves away from me. Thus, I don't send the order. And many times that resting order never gets filled because the underlying eventually moves away from that price. The result being, having two clients with the exact opposite order yet no trade ever takes place. What kind of market is that?? [/QUOTE] That is the point. QUOTE]Originally posted by mskl Lets fight for what is fair! [/QUOTE] [/B][/QUOTE] It is a noble thought.
1) Firstly, if you send an order in error that pays through an offering then you will get the best ask (Trade through rule). If a market maker posts a price that crosses the market then YOU want it to trade through the market. ie offering calls $2 below the best bid. You could never sell $2 below the bid because of the trade through rule. 2) You are paranoid if you think the market makers lock/cross at will! 3) It is client orders that lock/cross the market. Specialists will not fill the paper until the market is locked/crossed. And that is how they become locked/crossed. They care because that is how they make all their money (trading against the client with enough of an edge). It hurts them because we would a) take away their business (A CBOE executive once told me that the guys on the Floor paid a dear price for their seats thus should be allowed to have an advantage when trading against customer orders) b)as in the case of some exchanges, they honor the excess volume created by the client. That is why the CBOE came up with this new rule implemented on Friday where you are no longer guarenteed a minimum number of contracts (10). Now you only get what is there. The PSE, ISE honor the excess volume in many cases I don't mean to offend you but crossed markets are mainly the result of customer orders resting in the marketplace, to say otherwise would be well.............. I look at about 1,500 of the most active options. I would say that about 85% of locked/crossed markets are the result of a customer order sitting in one of the books. About 14.9% the result of technical issues. Please show me where as you say, "strikes are locked/crossed for hours" by market makers................... You post the cases right here!!!
let me clarify one thing. At the opening of trade Market makers can often cross a market for a short period of time but this doesn't last more than a couple of minutes at most. And this is usually only on the big movers of the day. For every market crossed by market makers for hours at a time (without a technical problem), I will show you 100 markets that are crossed by client orders resting in the book.