Is IB designed to just feed liquidity to Timber Hill?

Discussion in 'Order Execution' started by jonnysharp, Jun 15, 2011.

  1. In regards to API trading, it seems that IB has priced their order execution structure to almost force everyone to use smart routing, which includes Timber Hill, their market making operation as a liquidity provider, for example, using their flat rate commission structure for US shares is $0.005 per share, however if you route direct to an exchange and don't use smart routing (taking out the option of a fill with their market maker) they ask that you pay $0.013 (almost triple the fee) and they don't even allow you to use direct routing on their cost plus pricing structure, in other words they penalize you heavily for not giving them the option of filling your order in their book, whether this is ethical or not is another question, however are their other brokers out there that are truly non-bias to where you route? and don't want to penalize you if you don't fill their own order books?
  2. Roark


    def will be along shortly to insult you. It's a part of IB's customer service.
  3. Looking forward to it, I only stated the truth so I'm not being a naysayer, it would be fair to the trader having a broker than wasn't bias to where you route and simply "brokered" your trade with a even commission across the board.
  4. JamesL


    This is one of the main reasons why our group chose not to use IB - we wanted a shop where we could keep everything in-house trading futures and stocks. Sterling (which we wanted to use) even works with them via FIX, but we could never get an accurate answer about this when using API/FIX interface. If a shop can't use them like us, I don't know how you automated guys can effectively use them if it ALWAYS has to be Smart Routing (and before an IB rep says that you can get better executions via Smart Routing, you exits are based on where you enter, so you could get a better entry but executed on a more expensive ECN - not worth the hassle IMO).
  5. Bob111


    wow..a wake up call or something? it's been like this for at least 10 years. this is where "deep discounts" are coming from..they do trade against you. and they are pretty good at it. but-you have to give them a some sort of credit-they fill you either at NBBO or sometimes better at the fraction of the penny.
    there is some ways around it("smart"),but #1-IB not going to like you, if you start using them, #2- with 50+ trading venues-it's pretty much pointless to even try..on retail trading level we are in some ancient times,while guys on other side of the screen having all access to all hi tech toys,counting nanoseconds..point is -you have no choice-either give up or adapt and take it as it is.
  6. bone

    bone ET Sponsor

    Why not just lengthen your holding period modestly and not worry about it. Stand back from the turbulence.

    Just a thought. No reason to play into the strengths of the automated crowd.
  7. def

    def Sponsor

    The answer to your subject line is NO. SMART routing is designed to obtain the best execution for clients.

    IB's execution stats are regularly independently audited and the price improvement over the rest of the brokerage community is real. The venues were orders are routed are also posted so take a look at them and that should alleviate your concern.

    The reason for the fee structure is pretty simple - system strain and cost. Not only do we think we can do it better and more efficiently but there is only so much throughput available and we don't want a bunch of small orders from thousands of API's moving from exchange to exchange clogging our pipes and impacting the system. So if you want to develop your own routing to the 10+ US equity market centers, you can do it through us but we charge an extra price to discourage it.

    Nevertheless, even if you do elect SMART, you can control where you rest orders. You can specify stock and option SMART routing strategies for non-marketable orders. For stocks, customers with the cost plus pricing structure can elect to have their non-marketable orders routed to:
    - the exchange with the highest rebate
    - the listing exchange on the symbol
    - the highest volume exchange that has a rebate for adding liquidity
    - the highest volume exchange that charges the lowest for taking liquidity

    Hope this answers your question but the proof is in the pudding. I'd challenge you (or anyone else for that matter) to do some side by side testing with your other brokers and I'm fairly confident that IB's execution quality will come out on top.
  8. oraclewizard77

    oraclewizard77 Moderator

    Fine, then answer this question which is more important:

    Does IB or Timber Hill trade against IB clients. For example, are on the opposite side of the trade, and do they or you see the stops and targets?
  9. def

    def Sponsor

    No, TH does not trade against clients. They do not see stops. They do not see targets. They do NOT see any IB client orders, know about their positions or incorporate any client information into the prices which are sent to the market place.

    However, given TH is a market maker that does a substantial share of business providing liquidity globally. there is a chance that TH may be on the other side of your trade that takes place on an exchange. There also is a chance that the other side of your trade might be another IB client or perhaps Goldman Sachs, SAC, Renaissance, Knight, CSFB, etc.
  10. BSAM


    Could you not be so evasive with your reply, Def?...(Just kidding.) Thanks for participating here on EliteTrader!
    #10     Jun 16, 2011