Ubsurd users? isnt it simply a trading strategy? Why penalize users because your systems are unable to handle the load? is upgrading systems not the long term solution? or is this about retaining volume ?
This link should work. http://www.iseoptions.com/legal/pdf/proposed_rule_changes/SR-ISE-2005-31$Fee_Changes$20050629.pdf There is still no cancel charge so long as the cancelrder ratio remains at 5:1 or less. It appears they are changing their existing cancel rule from a 5 to 1 order ratio to a 5 to 1 contract ratio. It seems that the "cancel abusers" were placing the occasional one contract (one lot) order to keep their ratio at 5:1, thus avoiding cancel fees, while posting much larger bid/ask offer size. They also propose charging $0.10 per contract as opposed to $1.00 per order. It will not apply when there are less than 5000 contracts per month per customer. They have revised their software to allow a member firm to to identify customers so that the ISE will only charge the firm if a customer exceeds the 5000 contract cancel minimum and goes over the 5:1 ratio. I really don't think it will affect the smaller players.
It is the exchanges that make the rules .. no question. The calculation is done on the entire clearing number. So here is the problem. The exchanges no longer charge exchange fees for equity options ... gone for five years. MM pay fees .. customer's don't (again this is equities only .. ETF's are free as well, but there is a pass through license fee). So if you don't charge to trade and you have users acting as pseudo MM .. the folks who pay fees. You end up charging them for network use. BTW the fees collected by the firms are preemptive. They charge you even if they don't get hit by the exchanges .. which is almost always the case ... the doesn't move the accountability. It is the exchanges that make the rules. If you want to provide liquidity .. think about this ... before the Pacific closed it's floor MM leases were negative. You got paid to stand there .. but you had to make markets.
I was talking to head of Product management and head of Technology for CME about a year ago, this same topic came up. CME Globex is clearly experiencing congestion (the order ack time is getting longer and longer). So CME introduced the cancellation over 10:1 penalty, which I believe is fair. I am not a MM, but am an exchange member. There are a lot of so-called electronic trading firms out there that throws out a tonne of orders, and get filled in maybe 2% of them. See: http://www.cme.com/trading/get/sup/messagingpolicy12089.html Obviously this is a double edged sword, CME and ISE has become enormously successful because they would take any and all order flow to build up liquidity, but to do so requires constant technology upgrade and investment. So the exchanges are keenly aware that such rule may alienate some of the very market participants that made them sucessful. The exchanges are being very careful in introducing such rules. Just my $0.02
The proposed rule change seems to specifically do away with the entire clearing number and break it down to customers of a clearing firm as well as the clearing firm itself.
Can't be done by account. The exchanges don't get that information. It's done on the entire clearing number. That does change anything though the firms will still charge by account. The big difference between the CME and the option exchanges is the fee structure. CME still charges customer fees and owns clearing. None of this changes anything though .. the rule will still hit the accounts. The funny thing about this is that the prop trading shops have not (yet) complained. I think they suspected it was coming.
The ISE is saying by account. http://www.iseoptions.com/legal/pdf/proposed_rule_changes/SR-ISE-2005-31$Fee_Changes$20050629.pdf See 3A What prop firms are not complaining ...
Bingo, Specifically semi-automated order entry/cancel startagies that piss off the PMM's. Plus they will be able to pin down the EAM's specific guilty client. As a footnote, all you all have been getting ripped off by your BD's current option cancel fees.
Don't be too sure about the ISE not receiving any complaints. I know plenty of traders wishing to post complaints to the SEC - that's why I posted a link to the SEC in this thread. The old ISE vowed never to become complacent. This is a little surprising. Also, the ISE is very proud about more closely identifying and punishing traders who wish to cancel often. All U.S. floor-based option exchanges and specialist firms are already being sued by the stock option arbitrage firms. I have seen the suit. A feature of it is the option exchanges and specialist firms identifying parties they don't wish to trade with on the floor order-processing machinery. I believe the new BOX options exchange, out of Boston, is completely anonymous. The ISE may be opening itself to legal interest, or at least some hostility in the trading community. I'll try to post the SEC comments given by traders regarding this new rule. What I have heard is definitely not positive.