Are IB increasing the option commissions back to $1.95 for orders that do not use smart order routing? Did I read this correctly in the last communique? I can't find it on their website. I ask because I'm sure I read this while on holiday but cannot find the email. Is this so they can control order flow to the Boston Options exchange? Whatever happened to the BOX?
yes, IB raised commissions for "directed option orders" effective Aug 1st. did they do this so they could send all orders to the BOX? perhaps........(cost issue - the BOX will be a cheaper alternative) as for the BOX, check out the following link for a sneak preview of the format they are considering. Official rules should be available shortly. http://www.bostonoptions.com/index_launch.php
In what exchange order, are IB routing the Smart orders? Are they routing to the ISE as first choice?
the raise in fees for non-self directed orders has nothing to do with box. a number of people wanted the ability to route to all exchanges via the API. unfortunately, some of the exchanges charge additional fees for things like cancellations. given that API traders tend to send and cancel more orders than the average trader, something had to give in order to keep the lower fee. the order routing is specified on the web site. in short, first priority is best price. factors such as auto execution and cost also are taken into account after price. if you look at the routing stats submitted to the SEC, you'll see the ISE ends up getting most of the orders with the AMEX last.
a few points 1) What I meant was that since the BOX will not charge anything for "Orders executed for customers of a BOX Participant (OFPs)" then IB will route to the BOX first instead of the ISE. Having this choice will save IB lots of $$ and I have no problem with that. 2) At times the AMEX is the best bid/ask and an auto execution is available but because they don't flag this auto execution in their quote then Smart ignores the market. The only way to get the fill is to direct order route at twice the commission (not really IB's fault) 3) The second favorite destination is the PHLX. The worst exchange to send your orders. If there is one problem with IB's routing it is they favor the PHLX too often. Their two minute rule is a killer. The good news is that there are some, including Timber Hill who are fighting this rule.
mskl, re the phlx: i would assume the orders are routed to the phlx since TMBR is a specialist in a number of markets and will honor their quotes. I think ditto for Goldman. I assume posts where the other large market maker (you probably know who) that doesn't have the greatest reputation is avoided. you ofcourse will know better than me in regards to the phlx execution/speed as you actively trade.
I don't pay that much attentiion to who is the specialist on the PHLX. From what I have learned from one of Timber Hill's employees, it's not so much the market makers that are the issue but the PHLX CEO, Sandy Frucher. Frucher is the one responsible for instituting this 2 minute rule (a rule that does not allow customers to cancel orders for 2 minutes once the order is submitted). Despite the fact that the PHLX option committee voted to repeal this rule, Frucher is the only one who can change this rule. (Broker Dealers have their orders held up for 20 seconds). Also, the PHLX has a rule that allows specialists to hold limit orders for a period of 30 seconds before actually postiing them. Specialists can program this feature so that orders will be posted immediately and according to my source Timber Hill is the only specialist to have done so. But from my experience the two minute rule is in affect for almost all stocks and that includes markets where IB routes (not sure who the specialists are in such cases). Another problem at the PHLX is that their auto execution systems are off when you attempt to trade against their respective customer order book. According to my source, a change has been approved to allow for auto excutions in the fourth quarter of this year. But, as far as I know there are NO plans to eliminate the two minute rule and thus it makes the PHLX, IMO, the worst place to route orders. On another topic: Do you know when the official rules for the BOX will become public? I think that the Price Improvement Process (PIP), depending how it is set-up can either be great for traders such as myself or potentially very negative. My question revolves around whether the customer side of the order is displayed in the marketplace once a PIP is in affect (ie will traders such as myself know when a PIP is taking place?)
mskl, very interesting. i didn't realize a CEO could over ride the wishes of its members. I also didn't know about those insane rules - 2 minutes - that's an eternity. What is the motivation behind the rule? It sounds totally unethical.? Something doesn't seem kosher. BOX: I have no information. Given TP's track record of pushing for a level playing field for all parties (market makers, institutional and retail) I'm hopeful the rules will be favorable to all. I'm not sure how much if any influence Timber will have with the rules. Perhaps you should mail your concerns directly to TP (ibmgmt).
Also allows time for the market to move against you before they fill you. PHLX sucks IMHO and has since I've been aware of them. That's more than a few years.