MAdgenius: I'd appreciate your input on my previous questions. Here is one more. Understand, I'm not getting on your case here just looking for information. Q: If as you say, the exchanges are complaining that all these alleged cancels use too much system resources, how will a fee change the technology. I understand it MAY eliminate a few cancels at "our" level but apparently those who are abusing it must be doing so for a financial benefit and are unlikely to stop. They'll just find another way. Again, the exchanges reasoning leads to the conclusion that if their technology was adaquate, these cancels would not constitute a problem. Sounds like BS to me. Thanks
I'm trying not to be defensive. A fee gives the exchange more money to buy technology, and discourages the practice that strains the same technology. Apparently the fee is enough of a disincentive to the "abusers." Is this just a convenient way for exchanges to get rid of orders they don't like? It's possible? >Please tell us, if you will, do cancelled orders have any affect on you as a MM ? Any effect? As a market maker in the crowd the effect is small. It can be a nuisance to specialist/DPM. >Do you think a fee would affect volume? yes, fees lower volume. I definitely trade less when my expenses go up. >Would a cancel fee perhaps limit people trying to get inside the spread? If fees discourage customers from entering orders they are likely to cancel, then, yes.
I've stayed away from this one but IMO, the fees are there for one reason and one reason only - to keep orders from moving to other exchanges. Thus if you post a bid on one exchange and a better offer appears on another exchange, there is now a disincentive for you to cancel your order and lift the offer on the other exchange. This also isn't a technology issue because if it truly were the exchanges would come up with different ways not to penalize the public such as sliding scale fees, credits for executions, etc. The only advantage a market maker should have should be with fees and possibly with the handling of margin (although I'm not even sure I could argue for that with a straight face). The fee incentive should be for honoring quote their markets and responding to quote requests. I know the exchanges are making millions off of these fees - and while market makers may not be getting a direct 'kick back" from the exchange, aren't they really unjustly benefiting from decreased competition ?
I must admit I haven't been following the BOX detail, but it looks like somehow it's not going to get anywhere. Does anyone know exactly why there isn't an ECN like ISLD for stock options? Is it a legal issue? I don't believe it's an economical problem, I mean now that the exchanges charge millions of dollars for a system worth maybe 100k, it's not really hard to beat them.
Suppose you were planning to buy 15 contracts of a certain option. Suppose you were prepared to buy it at the current Ask price. You place your order for 15 contracts, it goes through, you get an execution for 15 contracts. Next, you create a new order, for any option, at a price rather lower than current current Bid/Ask. A second after transmitting the order, it goes to light green active status. A second later you hit Cancel. Now your first execution of 15 contracts is counted to offset the second cancelled order. You've just reduced your commissions from $1 per contract to 83¢ per contract! Genius indeed.
How so? IB cannot charge the fees until their billing system can itemize all debit and credit. There are so many cases and very confusing. The customers cannot track what is really going on under the surface of a total number. There could be potential fraud or crack involved. Watch out!!! (Friends say they are doing this now for direct orders. Although the rules are simpler than the new rules, it is still disgrace.) Without a clean accounting system, the new fees will just make IB more untrustworthy and degrade its quality of support even further.