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IB SMART router is screwing up ETF orders

  1. IB’s SMART router is treating many ETF’s as if they were listed on the AMEX when they are not. This has happened to my orders more than once. For example I had an order to buy EWM pre-open re-route at 13.49 submitted hours before the market open. Even though EWM is listed on ARCA, SMART routed the order to the AMEX where it executed on the AMEX open at 9:33:38.

    Meanwhile EWM opened on ARCA at 9:30:06. The ARCA volume was around 130,000 vs 21,900 on the AMEX. Arca’s price was 13.12, Amex’s 13.36.

    There are other problems with resting orders on the AMEX. Several times I’ve had AMEX limit orders fail to execute where something happens and the order seems to get “stuck”, frequently after a small partial execution. These orders never fully execute and remain showing in TWS even after being canceled and only disappear after the IB servers reset the next morning. Routing orders to the AMEX is bad practice with the exception of executing in the opening or closing cross (and now that NASDAQ is holding an opening and closing cross for NYSE and AMEX stocks hopefully that will change also).

    I don’t know if this holds true for all ETFS or only a subset.

    If you care about your ETF executions you should check to see where the order is resting or avoid SMART altogether until IB fixes the problem. I’ve been told they might have this fixed in three weeks.
     
  2. I reported this to IB in December. After many back and forth with support, i was told it had been forwarded to the development group.

    I'm not sure the support person every really understood the issue.
     
  3. I think you can customise SMART so that you can drop Amex as one of the exchanges it routs to. May not be an IB issue with the orders. People seemingly were having problems with Amex secialists pulling stunts.
     
  4. Pardon my ignorance but I does smart order routing work like DMA access? Are you sending ISO orders? cant you just specify an ExDestionation in your order?
     
  5. This is not a "problem" for IB.

    SMART is their main profit center...
    And ALL elements of SMART has been thought through carefully on the highest levels...

    So if they are routing this ETF to the AMEX...
    It's because it's legal...
    And also because it's in IB's interest to do so.

    And the chances of getting an IB person on the phone...
    Who will be able to discuss order routing intelligently...
    Is precisely NIL.
     
  6. LOL... thank you IB smart router. I went long a bunch of ETFs off the open today and happened to be offered 9k @ .32 on Amex and got the .36 opening print to close my long. Thanks!
     
  7. Well I flagged my ARCA listed ETF orders and checked them this morning. One, INP, was correctly routed for the ARCA open. The other two, EWM and IYG, were routed to AMEX.

    I canceled them and tried to direct route them using TWS. TWS would not allow a OPG time in force for ARCA market orders, so it is currently impossible to enter ARCA on open orders in these ETFs.

    I have exchanged emails with the SMART development group. They currently are scheduled to work on it in about 3 weeks. They have notified the TWS group of the TWS problem and hopefully it will be fixed in TWS sometime soon also.

    Even though it is not documented, I believe they intend to support ARCA listed stocks to the same level as the major exchanges. To me this means allowing LOO, MOO, MOC, LOC (assuming ARCA supports all these) and supporting pre-open re-route. My INP orders have been handled like this for the open.

    The current problem appears to be a inability to recognize which exchange some ETFs are listed on. EWM is listed only on ARCA, but an opening cross is done on ARCA, AMEX, and NASDAQ. In the data I've seen the ARCA opening cross has by far the greater liquidity.

    IB used to support excluding specific exchanges from SMART, but this no longer works. In order to comply with Reg NMS they believe they cannot exclude exchanges.
     
  8. fbell50, you are completely correct. MOO, LOO, MOC, and LOC are all supported by Arca. Tons of ishares and other ETF's moved to NYSE Arca listing status as of December 4th, 2007. Now that NYSE bought AMEX, perhaps we can finally do away with AMEX completely.
     
  9. This feature was implemented years ago, after I persuaded IB it was needed, precisely because AMEX specialists pulling stunts. This feature was more recently eliminated, and I think it was a mistake to eliminate it.
     
  10. I disagree. I have a lot of experience with pressing and helping IB to debug and to improve SMART routing. I believe that IB's intentions are good, and that it does a better job on order routing than other retail brokers. I believe that when IB fails in this area, it is not because of a scheme to cheat the customer, it is because the routing algorithm design decisions are often made without the level of sophistication
    which DeeDeeTwo and I would both like to see. I WISH that these things would be thought out carefully as your conspiracy theory alleges!

    I have had many email communications with IB employees who were able to discuss order routing intelligently, and occasionally, I have even had such communications by phone. The general rule, however, is that the small minority of IB employees who are able to discuss order routing intelligently do not speak to customers by phone, they do so by email. But the important point is that they do. You need to have some patience, and show them some respect, and work with them to improve SMART routing, and then you will find that it is possible to get improvements made, because IB sincerely does intend to provide us the best possible execution.
     
  11. Can you try re-wording this? I don't understand what you are saying.
     
  12. I think his point is that AMEX can work both ways. If you are on the right side of a clearly awful opening AMEX print, you appreciate the AMEX routing. Otherwise you don't.
     
  13. Reg NMS does not apply to orders executed in an opening cross. So this is no excuse for SMART to re-route open only orders to AMEX, where the customer wants to route elsewhere.

    Reg NMS does not apply to non-marketable limit orders. So this is no excuse for IB's failure to allow the customer to exclude AMEX from the routing of non-marketable limit orders.

    Reg NMS allows a broker to exclude any exchange which is not currently guaranteeing immediate automatic execution, for example, manual quotations from AMEX specialists. So there is no excuse for IB's failure to allow exclusion of AMEX at those times when AMEX fails to guarantee immediate auto-execution.

    Reg NMS allows a broker to route away from an exchange which is malfunctioning or which has a pattern of malfunctioning, so again, when those exceptions apply, IB has no excuse for failing to allow exclusion of AMEX.

    Reg NMS has many other exceptions. IB should allow the customer to exclude AMEX in the various situations where Reg NMS permits the broker to do so.

    I agree that Reg NMS will not permit the total exclusion of AMEX, but it does allow the exclusion of AMEX to the extent needed to avoid all of the problematic situations discussed in this thread - opening crosses, manual executions, specialist "stunts", malfunctions, etc. So IB should implement a way to exclude AMEX to the fullest extent permitted by Reg NMS.

    Let me reiterate my earlier postings:
    IB is not scheming to profit from bad order executions. IB sometimes makes less than optimal algorithm design decisions, for order routing, but this is an unintentional shortcoming. I don't think any other retail broker routes better than IB.
     
  14. That would be nice, but I get the impression that the SMART development group is always busy and implementing a Reg NMS exclusion option would be difficult and increase their legal liability. It wouldn't surprise me if their legal dept said no way. I expect this option is permanently off the table. Now that NYSE has bought AMEX, perhaps they will move the products and give AMEX the quick death it deserves.

    I agree. IB is not scheming to gyp its customers. OTOH, as someone who never uses market orders outside of the crosses, especially with Reg NMS I am not convinced that SMART handles my orders any better than direct routing to the exchange of my choice.

    I can point to several blown orders courtesy of SMART. I can also point to some good fills, including one phenomenal fill $2 outside the day's range which I felt certain would be busted (and probably should have been). I haven't kept records, so I cannot tell for sure, but I suspect SMART has been a net loser for me. This is a tricky issue to evaluate since the bad results always make a much stronger impression than the good ones.

    Of course, the commission advantage to using SMART for unbundled commissions is so large it swamps whatever the net cost/benefit of SMART may have been in trade executions.
     
  15. IB's job is to maximize return for it's shareholders...
    While giving it's Customers legal fills.

    They do this exceedingly well with HUGE profit margins > 50%.

    SMART is the absolute cornerstone of IB's business...
    And is not designed by programmers...
    But at the Vice President level of the firm.

    Since there is no actual definition of "best execution"...

    http://www.ici.org/funds/abt/faqs_best_execution.html

    And Reg NMS is pretty much meaningless...
    Most brokers can and do...
    Route orders to maximize their bottom line... much of the time.

    As a rough guess...
    You might typically get a truly "best execution" about 80% of the time...
    And get chiseled for a penny or even much more... about 20% of the time...
    (Based on my experience of doing about 100,000 trades/year).

    What you are arguing...
    Is that IB voluntarily creates a HUGE COMPETITIVE DISADVANTAGE for itself...
    Yet still continues to increase it's market share year after year.

    This is a fantasy.

    You should never use Market Orders...
    Use ONLY Pro Level Third Party quote data that also gives you a good NBBO quote...
    And read more articles like the following:

    http://www.tradersmagazine.com/issues/20_275/100123-1.html
     
  16. Now that NYSE is buying AMEX, IB has no plans to fix this. They assume NYSE will kill AMEX. Perhaps they will, but meanwhile beware. I've seen these ETFs trade several hundred thousand shares before the low volume AMEX open.
     
  17. Couldn't agree more.