If not then what is the logic that SMART routing uses to obtain price improvement above NBBO? I assume orders would have to be transmitted to any venue which offers the possibility of price improvement (e.g. Directedge ELP) If I'm mistaken, can you tell me what I'm missing? Is there a white paper or some up-to-date web page which could describe the smart routing logic in detail? This seems to be another area which I believe more SEC disclosures should be mandated IMHO.
I replied NO to your question about Timber visibility to Smart. While it could add value to clients orders there were far too manu people questioning and that was one of the reasons TH was removed from Smart a couple of years ago. Routing statistics are in the 606 reports which are publicly available. However a full blueprint on Smart routing would be proprietary and if firms were requid to provide full details, I'd bet that you'd hear more opposition from those internalizing their order flow.
I was wondering where my Timber Hill fills went. I always found them to be instantaneous fills and sometimes with price improvement. I wish that option was still around.
"Mr. Peterffy has a solution: Require exchanges to hold orders for one-tenth of a second, while allowing registered market makers, such as Interactive, to trade at will. " So by "trade at will", he's saying that his firm should get an exemption from his own proposed 1/10 of a second minimum? That would no doubt reduce competition in the liquidity providing space. So Timber Hill and its own very large brethren who are also registered as MM's (and this includes Citadel, GETCO, and others -- the very HFT's that already have the greatest financial backing and therefore colocation at every exchange) have complete freedom to do whatever they want to the markets without the trouble of smaller competitors "getting in their way". And in Timber Hill's case, it's even worse, as they also reserve the right to internalize IB clients' orders. Such orders never get to see the light of a real exchange -- another convenient advantage for Timber Hill's HFT operation, should they choose to use it (this is from IB's Web site): "IB's market-making affiliates, including Timber Hill LLC and Timber Hill Europe, may provide automatic execution for certain eligible IB customer orders routed through IBâs Smart Routing system, for certain Nasdaq stocks, NYSE stocks, global stocks and other securities."
He was actually misquoted and if you listen or read the earnings transcript he states that the HFT shops should be encouraged to make markets at all times like market makers.
Maybe Im just dense, but I could never wrap my head around this constant harping on the 'broker trading against you'. First of all, someone has to trade 'against you' or you will not be doing much of anything. Staring at the screen mostly. And what diff does it really make if Timber wants to take your liquidity? Is there some taint associated to the trade if they fill you? Is it like a voodoo curse? Last I looked Timber never reached out from the screen and forced you to click send. You were buying or selling at that price of your own volition. "I'm a great trader but my broker cursed me !!!!!"
Actually it keeps your commissions lower because they are profiting another way on your order flow. That's why they charge you more when you route your own orders.
As long as you are routing your order manually, they don't charge anything extra. If you are routing through the API, then yes. Their cost structure depends on routing to lower cost exchanges when there is an option to do so.