IB options commissions

BOX is very active. 99% of IB options orders are routed using IB's SMART Routing system. And the majority of the non-directed market orders go to BOX, not NASDAQ or even CBOE.

This may be explained by the fact that the Timber Hill subsidiary of IBG pays the IB brokerage subsidiary $1.00 per contract for each order routed from IB and executed against Timber Hill via BOX subject to some stipulations outlined here:

http://www.interactivebrokers.com/download/1Q_2012_IB_ORDER_ROUTING_REPORT.pdf

So there is a significant payment-for-order-flow incentive for IB to route market orders to BOX or whichever other exchange is designated by Timber Hill.

Still, the BOX rebates for taking liquidity are substantial and it's great that you are able to receive those as pass-through credits using the "highest rebate" function you have described in this thread.

Are there any other exchanges that pay rebates for taking liquidity, or is this unique to BOX?

 

You can find all the exchanges rebate tables in IB option commission website.

IB is here to make money but so far they are doing a very honest job. Either we should quit trading and go and play guitar and climb mountains instead of trading !! or stick with a reasonable broker and do our trades. Remember as a trader your goal is not to pay less commission. Your goal is to get into good trades and make money. If you just knew how other big brokers like Fidelity treat their customers and sell their orders, you would never complain about IB.

 

Very interesting stuff, i use IB also and will sure give this a try! Nothing pisses me off like being executed on CBOE...
There is still valuable info on elitetrader afterall!!

 

Box volume is very low. Just over 4%. Other exchanges with make/take fee/rebate models are:

ARCA, BATS, and NASQ. I'm not sure about C2 and PHLX. Remember, if you take liquidity on these three exchanges, it can get very expensive. NYSE ARCA does the most volume.

Bob

 

BOX is reverse make/take exchange. The taker receives a credit, the maker is charged a fee.

IB routes liquidity taking orders to BOX if (i) BOX is at the NBBO, or (ii) Timber Hill wants to provide a price improvement to the customer order. In both circumstances the customer's orders collects a rebate.

There is one very important feature of the the IB's cost+ commission structure that very few traders are aware of. Due to IB's high volume, IB customers enjoy significantly higher exchange rebates than those of smaller brokers.

The Smart routing preferences a user can set only apply to liquidity providing orders. The default setup is geared toward maximizing the likelihood of a fill. If the order improves the NBBO, it gets routed to a make/take exchange (so that the customer collects a rebate). When the newly created NBBO gets matched by a traditional fee exchange (e.g. CBOE, or AMEX), we re-route the order to such exchange, because that is where a broker holding a liquidity taking order is most likely going to route it.

 

Thanks for the post, IBsoft.

Does your last paragraph mean that the "Highest Rebate" preference hajimow has described does not apply to the liquidity taker rebate at BOX?

That is, if CBOE and BOX both offer the NBBO and a user has set the preference to "Highest Rebate," might the IB system route the order to CBOE instead of BOX if Timber Hill designates CBOE as the venue where IB will receive the most payment for the order?

(from the IB Payment-For-Order-Flow Disclosure / most recent 606 report)

If multiple exchanges are quoting at the NBBO for an option order and IB has discretion as to where to send the order or a portion of it, IB generally will “break the tie” by sending the order to an exchange where it will receive the most payment for the order, or to an exchange designated by the firm from whom IB will receive the most payment (typically IB’s affiliate Timber Hill LLC – see below).

 

Bob--yes, BOX is relatively small, so it's notable that BOX is the top destination for non-directed market orders at IB, a high-volume options broker.

Thanks for the list of exchanges offering rebates. Do you know if any offer the "take liquidity" rebate besides BOX?

 

What Bob had as an attachment was not the list of exchanges offering rebates. It was only the list of exchanges and the percentage of the daily option volume executed in that exchange. Definitely CBOE is number one.

 

hajimow, he lists them in his post. I meant there. Thanks.

 

Remove the volume of options that only trade at the CBOE like SPX, and you'll see that the CBOE is not the highest volume. More customer Order flow that you have access to trade with occurs on the ISE. the AMEX volume has a lot of broker cross volume of institutnal orders. pHLx also has a great deal of that order flow. Most dividend spread and crosses occur at the Phlx from that big firms that owned the exchange in the past. They get volume deals and capped commission.

The best research you can do is go to the OCC website and do a volume query on the symbols you trade. You can see where the customer flow is going.

Bob