Bob, What are you trying to prove with your link and your sub-penny reference. There are no sub-pennies in options and as a competitor who boasts about his options experience, surely you know that. I'll post directly from the BOX site and your link above which states: PRICE INCREMENT DURING THE PIP During the PIP, the price increment for Improvement Orders is one cent. Just because McCurley and his inane postings can't figure out what a + and an average price means in the trade logger (which pretty much proves he's not a current client), doesn't mean we should expect less from you.
Where did I mention sub pennies? I'm only trying to understand what he is asking about. The Box offers price improvement. I did not offer my opinion on if I thought it was a good idea or not. I honestly don't care. It's just another exchange to me.
I believe Bright's reference to sub pennies is for stock trading, not options. BTW, Bright trading is a prop firm that benefits from being able to buy on the bid and sell on the offer. Retail clients are more apt to enter market orders and benefit from sub penny executions in equities that occur in dark pools from smart routes and payment for order flow. This structure also benefits retail clients by augmenting lower commissions that also benefit the retail client. Bright is lobbing for wider spreads in some equities and the elimination of SEC led narrowing of trading increments to benefit the public. I have no problem with lobbying, but IMO they are not doing this for the benefit of the "market." When I was a market maker, I would have lobbied to protect trading in fractions and single list options. bob
Retail clients do not benefit from sub-penny executions in any asset class. The nature of a retail order of small size (say ~1000 shares/10 contracts) means that he doesn't benefit in any meaningful way from infinitesimal price improvement. However that same retail client will be a real loser when his orders aren't executed b/c an institutional trader steps in front by .000001 or HFTs run amok cause another flash crash.
I believe indirectly they do. Those orders executed with price improvement are often related to an equity market maker paying for an order to be routed to them. Again, we are talking equities here, not options. With the money the brokers make from owning their routes and have that money flow, they can offer lower commissions. Without that revenue flow, commissions would be higher. The savings come from the over all commissions offered not the sub penny savings. My opinion on the flash crash is a topic for another thread.
Thank you to IBsoft, Bob, and def for pointing out my error in describing the PIP auctions at BOX as sub-penny trading. The correct term should be "substandard increments," which for now means penny price improvement for options. However, whether the improvement is via sub-penny (equities) or substandard increments (options), I agree with the CBOE letter below which argues that the effect on markets is the same. See this 2004 CBOE letter which addresses the SEC decision to allow BOX to use substandard increments for price improvement: http://www.sec.gov/rules/proposed/s71004/s71004-328.pdf The issue of subpenny quoting in the equity markets highlights a serious problem in the options markets. In the equity markets, in which a standard quoting increment is one cent, subpenny quoting really represents sub-increment quoting. In contrast, the options exchanges use a standard increment of five or ten cents, depending upon the price of the option. Recently, the SEC approved the use of sub-increment quoting in the options markets in a very limited context when it approved the Boston Options Exchange ("BOX") proposal for a Price Improvement Period ("PIP"). In the PIP, a member can enter a quote at a penny ahead of the national best bid or offer, visible only to a limited group of market makers for a three second period. During the virtually instantaneous PIP, market makers can improve on the PIP price by a penny or more and the original order entry firm can match or improve any better price. It is clear that the PIP is designed to enable firms to internalize customer orders by pricing them at a substandard increment for a very brief exposure period. We and others expressed great concern to the SEC about the potential harm to customers and fair competition that would result from enabling the BOX to employ substandard increments in the PIP. Our fears were based on the same trepidations the SEC has with substandard quoting in the equities markets. Indeed, in the Proposing Release, the Commission notes that it is "concerned that non-uniform display of subpenny quotes is creating hidden markets whereby more sophisticated traders can view and access better prices than those available to the general public." That is precisely the environment in which the PIP operates. The worries about stepping ahead of customer orders by substandard increments through subpennies in the equity markets is the exact modus operandi of the PIP through the use of substandard options increments. Moreover, the SEC has denied CBOE's request to trade in nickels those options using a ten cent standard increment, evidencing the anticompetitive effects of allowing some but not all markets to use substandard increments.
McCurley, you'll have to go back to the archives and try again. You have pulled out an SEC letter from 8 years ago when the options traded in nickels and dimes. The majority of the US option volume trades in pennies now.
Right. So the next substandard increment for the PIP will be the subpenny. But what does McCurley refer to?