Exchange Rules

Discussion in 'Order Execution' started by hii a_ooiioo_a, Dec 2, 2002.

  1. Whose rule is the prohibition on "Electronically Generated Orders"?

    Because I know someone had that rule. And yet apparently some people are able to program electronically generated orders anyhow, because a recent memo about new cancelled-order fees mentions that people should be aware of these fees if they have electronically generated orders through their API.

    Similarly, whose rule is the rule against unbundling?

    It seems that the upcoming Box Options Exchange will not apply the electronic generated order rule or the unbundling rule as well as several others.
  2. def

    def Sponsor

    As the memo your refer to was from IB, I'll answer some of your question.

    The current existing option exchanges made these rules - obviously to protect the status quo. I know you read our (IB's) General Counsels statement against these limitations. For those that haven't, he quotes: "For example, as bad as the 15 second option speed bump rule is, it wold have been a minute or two minutes or half an hour if IB had not worked tirelessly to get it limited to 15 seconds. Likewise with other anti-trader rules that have been held up or revised solely because IB battled hard against them. " Just shows you what you non-market makers are up against. Not all market makers are for these rules. It's just that the balance of power is skewed towards those that have trouble competing in an electronic environment.

    Due to the current exchange rules, IB's programs will not allow multiple orders on the same strike within 15 seconds. There is nothing stopping an API from setting up an order before it is submitted. API users tend to send in more cancel and submit requests than the average user. The point of the memo was to warn those setting up directed orders with API's about the cancel fees.
  3. 1) Option Echanges

    2) Ditto

    3) If the Box doesn't they will own the order flow ...
  4. Ok, I did a Search on the IB site. So these are exchange rules, mostly CBOE rules. Not laws.
    So if someone is found to violate these rules, what will the penalty be? Apparently people can and do electronically generate options orders through an API without manual intervention. Although the new order cancellation fees will be punishment enough for doing this now.

    Apparently the unbundling rule is only a CBOE rule. So on the other exchanges you might submit multiple orders to cancel out excess order-cancellation fees.

    • "It is a violation of U.S. option exchange rules to transmit orders that have been created and communicated electronically without any manual intervention. Customers using IB's Trader Workstation therefore are required to click a mouse, hit a key, or do some other manual action to transmit option orders. Customers with a Computer-to-Computer Interface represent that they will not allow orders to be created and transmitted automatically without manual intervention.
    • U.S. option exchange rules prevent customers from transmitting multiple orders to an option exchange on the same side of the market in the same option class within any 15-second period, either in one account or multiple accounts in which a customer has a beneficial interest. The IB system is therefore programmed to reject or delay transmission of orders on the same side of the market in the same option class that are sent by a customer to IB within any 15-second period. Customers acknowledge this and represent that they will not use multiple option trading accounts with related ownership to avoid this restriction.
    • The Chicago Board Options Exchange ("CBOE") takes the position that customers may not submit multiple orders on the same side of the market in the same option class to the CBOE if such orders are part of the same investment decision - even if more than 15 seconds has elapsed between such orders. Thus, under CBOE regulatory guidelines, an option customer may not break up or "unbundle" a single investment decision into multiple orders and transmit them to the Exchange - even if the orders are more than 15 seconds apart. For example, if a customer wants to buy 100 options, that customer cannot send five 20-lot orders. Click here for more information about CBOE trading rules.

  5. Those rules are pretty much across the board.

    If they ever repeal them our volume would increase twenty fold ...