<i>When you say 'marketable order' do you mean market order? I mostly use limit orders. </i> -----------> No, a marketable order is a limit order with essentially the same effect as a market order. For example, all six exchanges are showing 0.50 bid, 0.60 offer, and you then send an order to buy at 0.70 or better. <i>Can anyone explain further about "lock the market"? I found some discussion of it here. The options bid-ask spread is often so high it woudl be hard to lock the market.</i> ------->Locked markets happen all the time in options. For example, ISE is showing 0.50 bid, 0.55 offer. PHLX is showing 0.50 bid, 0.60 offer. You then send an order to buy at 0.55, and IB 'smart routes' it to the PHLX, resulting in a locked market.
Appreciate the clarification. So not only do locked markets happen all the time, they happen all the time in exactly the way we've been discussing in this thread. They happen because a naive investor like me, naively uses IB's SMART routing, which uses PHLX, who pays IB the most. No wonder I see so much activity in the background, while my order sits there at PHLX. I've locked the market. It seems the specialists at PHLX either still don't have enough orders and/or deliberately try to keep the bid/ask high. Now, while the market is locked, the other specialists at the other exchanges are required to make numerous trades at the locked price. Would this not annoy them, while the PHLX specialists laugh up their sleeve? Could other investors speculatively buy up these positions, then try to sell them after the lock unlocks (they could unlock it at any time by buying my 1 contract at PHLX), or in theory dump them off at PHLX only to have them languish as mine does. In other words, if my bid is an anomaly, in a truly efficient market my one lot would get snapped up and the market would return to equilibrium, but because of the 6 exchanges and the illiquid PHLX, the market locks and hundreds of contracts change hands at the anomalous "bargain" price. I suppose eventually this creates selling pressure that might get my bid met, but I'd rather not have to wait for that and should simply have routed to BOX or ISE to begin with. I should also ask myself if I should be bidding that extra nickel, since clearly all those other transactions resulting from the lock demonstrate that many people think they'd love to be on the other side of my bet.
I'm no longer an expert on US option order routing but I can say that getting the client the best price is first and foremost our aim. If you can provide me a specific example and details of when you think an order routed should have been routed elsewhere, send me a PM and I'll seek feedback internally. One other comment, the link you posted on SI was from 2001. The technolgy on exchanges has caught up and/or adjusted and fortunately, it isn't as easy to do anymore.
It's difficult to say for sure if I would have got a better price by routing my orders away from philly, and given the sizeable extra charge incurred when routing directly to one particular exchange I just cannot have a chance to see it for my self; we know that box allows for price improvements. Could u let us exclude any exchange instead that only box/amex?
We need to define "get the best price". I think in my cases, all the exchanges offered the same bid ask spreads. The issue really becomes, "getting the best execution". As people at this thread http://www.elitetrader.com/vb/showthread.php?s=&postid=979764#post979764 have pointed out, not one person in this [options] forum thinks PHLX, PSE, or AMEX is going to give them decent execution. If you can seek feedback internally, the question actually is, how about letting us set up SMART to exclude PHLX, PSE, and AMEX. Or consider giving us access to the European options exchanges lauded near the end of the above thread. I expect though that the answer is: "We're giving you a great commission rate of about 75 cents/contract... but this is subsidized by 'payment for order flow' from PHLX... thus many of your orders will end up there. You will have plenty of time to notice this since they will just sit there for a very long time (e.g. limit orders between bid and ask). If you want better execution, or 'price improvement' you are free to pay us $1.75 a contract to direct route to ISE or CBOE or BOX.
When I say price, I mean execution. We are doing tremendous option volume in the states and are intimidately aware of the ins and outs of options routing. We are confident our SMART routing is second to none and maintain detailed statistics on our quatlity of executions, exchange performance etc. As I said, with some examples of where you think we could do better, I will pass them on. In the meantime, I start a dialog internally to get some additional info on the fill quality.
How are we supposed to know were we cud have gotten a better execution? Again, will u allow us to exclude any of the exchanges from SMART? I think its a reasonable q. and that's an example of how u could do better: can u give us an answer? Thanks
def, appreciate it. From last week I just have memories of the majority of my orders getting routed to PHLX, and some of them locking the market, while I sit there not getting filled. Next week I will keep more careful notes and PM you with any specific examples. PS Hoi noted that IB does provide access to KOSPI and LIFFE but, the market makers got the SEC to disallow US residents from trading there.
With linkage of an exchange, your orders shouldn't get locked. Perhaps the other exchange had delayed quotes or turned off autoex or perhaps not. Examples will help. We take our options routing quite serious and they will be looked at. bitstream, if you can't state without a high degree of probabilty that you'd be filled elsewhere then I'd argue there shouldn't be a complaint. Options routing in the US is quite complex and I'm not sure we'd want to offer the abilty to drop an exchange and still call it SMART. I'll bring it up though but you'd make a much stronger case with an example.
Ok, thanks, I wasn't complaining by the way, I am just asking to have the flexibility of setting up SMART the way we prefer and think is best. Some of my contracts have been filled at ise/box, and the latter has given me price improvement, so I'd like to make sure my orders are always routed to these exchanges. Now I am not trading that often, but as soon as I have accumulated enough data I will send it to u. Thanks again bit