Is IB designed to just feed liquidity to Timber Hill?

If you believe that there are profitable algorithmic strategies that target and trade against retail order flow, then it's natural to understand there's some paranoia around how brokers get your trade executed. Not saying that they are necessarily trading against you themselves, but many brokers sell their order flow to outside entities, or perhaps route your order in a way that allows information leakage. Whether or not you care might depend on your trading strategy though.

 

Yes , you are correct. If a broker was using knowledge of your position to trade against it, frontrun, or otherwise manipulate the market against you, then there would be a serious problem.

I was referring to the simple case of you go to the market, and for whatever reason, your broker chooses to fill you directly. In MOST cases, you should not care, though there may be reasons to not want that to happen.

 

I'm pleased I learned how to swing trade.

 

That's good information to know, DEF. Where in the article is the misquote?

Does Mr. P still want the the other computers to slow down to the 100 millisecond minimum delay or did the reporter get that part wrong?

 

Thanks, def, that's good to know -- that is quite different from what the article stated. It doesn't surprise me as the financial press often seems pretty confused by issues surrounding market microstructure.

Options12, the part of the article I was referring to is:

which struck me as pretty outrageous as it gives "registered market makers" the exclusive right to stuff quotes, and the largest/most powerful HFT's (such as Citadel, GETCO, and IB's Timber Hill unit) are already registered as market makers.

I agree, in principle, with def's correction to Peterffy's statement that HFT shops "should be encouraged to make markets at all times", even though the best way to impart said encouragement isn't entirely clear to me. Also, on May 6 2010, everyone, including "registered market makers", in effect pulled out completely (likely because they had to due to delayed data and/or using up all available capital). And it's not just May 6, according to Nanex:

http://www.nanex.net/Research/StubRuleViolations/StubViolations.html

Nanex also has a proposal to impede quote stuffing:

http://www.nanex.net/Research/Proposal/NanexProposal.html

 

Stock777, here's a recent case involving information leakage allegations at Merrill. I agree with you that it is a serious problem when this kind of sharing occurs.

http://www.sec.gov/litigation/admin/2011/34-63760.pdf

 

So you claim they removed Timber Hill from SMART. How do I hit them now if I want to deliberately hit them?

 

Look, IB charges commissions 50% less then other brokers. They have to make it up from somewhere, are they making it up in Timber Hill? I would think that’s a very legitimate question.

 

Unconscionable thief!!!

There is no such a word "honesty" in a broker's dictionary.

I hope he is long European bonds, like Corzine!

 

Quoted out of context and discussed in the earnings transcript which you may want to read. I understand that the point that is trying to be made is that HFT's should have market maker obligations.