Thanks for your reply. You very well could be correct and I have no reason to doubt your answer and appreciate the time you took to provide the answer. I am looking at the rule 805a and it appears I have to dig further with the OCC to actually see the rule as 805a states in part "At or before such time as the Corporation shall from time to time specify on each expiration date,...." What I also do not know but would like to find out is if IB needs to go through OCC or if the ability to self match as a clearing firm allows it to be done in house. If so then the time of OCC doesn't really matter. The whole thing is just bad news once again for the retail trader. If options can only be exercised for up to half an hour after closing that would change some of the things I would do. For example selling options at even a penny or two or especially five cents begins to look very good is some situations if you know you only have half an hour of time premium. obviously it can blow up pretty badly if a press release is given two minutes after the closing bell that goes the wrong way which might be the reason someone was willing to pay the nickel to begin with..... Thanks Robert
I ran into this document and while I am unsure of the date or if this is the current rule as of this post it does agree with everything else I have read. I am making this post for anyone else with this issue and hopefully save someone else from the same frustration http://www.sec.gov/rules/sro/ise/2010/34-61458-ex5.pdf
Options really expires on Saturday? No? One time I wrote some puts on a stock that I wanted. It expired almost right at the money. These were put to me on the Saturday after expiration Friday, when I did not expect to get the shares. IB was my broker when this happened.
Stocks settle T+2 but this does not mean you can buy at stock after T date and have it settle on T+2. Ditto for options, just because they "officially" settle on the Saturday after expiration doesn't mean you have the right to exercise them until then. The official cut-off time is 5:30 PM. However, brokers need to process client instructions and pass them the clearing house before their deadline. There is nothing nefarious going on here. Outside of the auto-exercise options, there might be thousands of additional exercise or lapses instructions that need to be processed. A buffer needs to be built in to process and confirm receipt of the instructions. IB's procedures are in line with industry practice.
Thanks for taking the time to reply Def I can think of no reason why option exercises need to be done by 4:30P CST (they are located in Chicago I believe) on Friday other than it is to the market makers advantage to have the limit in place for an item that has not yet expired. This is especially so considering that trading is not yet done for Friday. IB I believe is a clearing firm so does this allow IB to not use OCC if IB so wishes? If IB has customers on both sides (long and short ) options that are not ITM before 4:30 and then go in the money at some point before &P CST what would actually stop IB (or any other firm actually that clears) from trading the stock and at the same time giving anyone short the option an exercise notice? This would seem like a no risk no brainer. Of course some options may once in a while get exercised that are OTM at < 4:30but that would be rare and a small amount compared to the profits that could be made with all the ITM options that the clearing firm has between 4:30P and 7P CST. Def, I really mean no disrespect to you personally but the argument of "...there might be thousands of additional exercise or lapses instructions that need to be processed. A buffer needs to be built in to process and confirm receipt of the instructions" gives you less creditability for me. These are done electronically and with the use of computers I would expect that the match up of 100K contracts would take no longer than 60 seconds and I would guess the time is closer to 5-10 seconds for the computers to do. Its not like we have old ladies with glasses hanging off their necks by a cord going through a file folder manually matching up the orders. If C can trade 1.3Billion shares on Friday without so much as a hiccup I am pretty sure the OCC can handle a few hundred thousand orders or even a lot more over the course of the weekend. There is no question in my mind that there is something going on here and there is way to much money involved for me to be the first person to figure out what a difference it would make if the time was Friday night at midnight. My first guess is that the time is artificially held back because market makers are more often call writers than call buyers. What I think of IB in this greatly depends on the ability of IB to clear the trades without the use of the OCC. If IB must go through the OCC than beyond TimberHill influence I would not think IB is doing anything wrong or improper. So unless I find that IB does not have to go through OCC I will assume that IB is on the level and that all the money for the buyers of the options is left on the table as a result of another influence. I will add for the IB broker dealer retail side of the business it would seem to be a VERY big competitive advantage if the time was moved to a later time as IB is already fully automated and most other brokers I have looked at require a phone call to the trading desk to exercise. I would think that if everything remained the same but the exercise time was moved to midnight that IB would gain a lot of business especially from companies like TOS OE due to the huge price advantage IB has over the others for manual exercising.
This is a silly complaint, IB is doing nothing wrong here. Effectively what you are asking for is to get free exposure with no risk and without paying anything in time premium. Ask yourself why anyone would take the other side of that trade. Market makers face significant pin risk at expiry, and every windfall from the market going their way from 430 to 530 is on average going to be offset by an anti-windfall from opposite positions.
IB does not own the options and has no right to exercise. I get that you don't trust them and I get that you think they would be 'stupid' to be honest. But why do you believe they have the ability remove options from your account and take ownership? File a complaint with the OCC if you suspect foul play and see if they can reassure you. Mark
when was the change made from T+3 to T+2 for stock trades? I totally understand the need for a buffer time period to process instructions but are you really getting thousands of requests to exercise out of the money options or to not exercise ITM options?
every firm has to go through the OCC. Looks to me like they clearly list the cutoff times on their site for sending in exercise instructions. I would expect it also covers this in the options agreement you signed when you chose to have an account with them and agreed to their policies.
it wasn't, that's my error for just being Asian centric as many of the exchanges out here are T+2. in regards to the number of requests, I don't have the exact numbers and of course it varies but options are commonly pinned to a strike and anyone holding a position will have to make a decision if they want to exercise these or in other cases let them lapse.