just21, are you sure??? In the press release it states, "The OptExSM system uses advanced technology to scan the entire options marketplace, and route orders automatically based on the best price available nationwide and other execution quality factors. This âhunt and seekâ approach for determining best price contrasts with traditional static order routing. OptExSM, which will act solely as agent on behalf of orders routed through the system, will access liquidity from a number of specialist and market making firms, including SLK-Hull Derivatives LLC. SLK-Hull Derivatives is a wholly owned subsidiary of The Goldman Sachs Group, Inc. and an affiliate of OptExSM. OptExSM is a service mark of Goldman, Sachs & Co."
It doesn't appear to be an OTC market but simply an order router which if the case then it is meaningless to say the least!!!!
That is my interpretation but internalisation has been a hot topic for months now. "will access liquidity from a number of specialist and market making firms, including SLK-Hull Derivatives LLC. " that part of the press release suggests they are filling the orders to me.
My understanding is that they will simply route the retail orders internally and fill them without having to go to the floor (except for the OCC tape). There is a lot of consolidation going on....that's another reason why the options guys are starting to leave the floor as well as the futures guys. My point in asking, is that it makes sense to me that if a broker (Schwab for example) is going to basically trade with you (as they often do with equities), then they should disclose it up front. I'm not concerned about liquidity, it will be fine, and costs per transaction should come down, it's more of a fear of losing the "open auction" market that concerns me....I guess we'll see how it goes. Don
Monday April 22, 9:19 am Eastern Time Press Release SOURCE: The Goldman Sachs Group, Inc. Goldman Sachs and Schwab Announce Options Order Routing Agreement NEW YORK--(BUSINESS WIRE)--April 22, 2002--The Goldman Sachs Group, Inc. (NYSE: GS - news) today announced that OptEx(SM) Services LLC, its wholly-owned subsidiary, has entered into an agreement with Charles Schwab & Co. Inc. in which Schwab will route and execute single-leg options orders via OptEx's(SM) technology-based routing system. Terms of the agreement were not announced. The OptEx(SM) system uses advanced technology to scan the entire options marketplace, and route orders automatically based on the best price available nationwide and other execution quality factors. This ``hunt and seek'' approach for determining best price contrasts with traditional static order routing. ``Price, speed and access to liquidity are all critical to options traders,'' said Lon Gorman, Vice Chairman, The Charles Schwab Corporation. ``This business relationship places Schwab and OptEx(SM) at the forefront of a new frontier in the options world -- one that relies on state-of-the art technology to enhance customers' trading experiences and results.'' ``We are pleased that Schwab has chosen Goldman Sachs as its partner for options routing and execution,'' said Robert Steel, Vice Chairman of Goldman Sachs. ``We are committed to providing the best of our technology and expertise so that Schwab and other retail firms can share those benefits with their customers.'' OptEx(SM), which will act solely as agent on behalf of orders routed through the system, will access liquidity from a number of specialist and market making firms, including SLK-Hull Derivatives LLC. SLK-Hull Derivatives is a wholly owned subsidiary of The Goldman Sachs Group, Inc. and an affiliate of OptEx(SM). OptEx(SM) is a service mark of Goldman, Sachs & Co. The Charles Schwab Corporation (NYSE:SCH - news), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. (member SIPC/NASD) and its other operating subsidiaries, is one of the nation's largest financial services firms serving 7.9 million active accounts with $857.7 billion in client assets through 429 domestic offices, 5 regional client telephone service centers and automated telephonic and online channels. About 25% of Schwab's client assets and 10% of its client accounts are managed by approximately 6,000 third-party, fee-based investment advisors served through Schwab Institutional. The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at http://www.schwab.com, http://www.ustrust.com and http://www.cybertrader.com respectively. Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world. -------------------------------------------------------------------------------- Contact: Goldman Sachs Media: Ed Canaday, 212/357-0005 Investor: John Andrews, 212/357-2674 or Charles Schwab & Co., Inc. Media: Marta von Loewenfeldt, 212/819-5284 Investor: Rich Fowler, 415/636-9869
a couple of points from research I have done: 1) the trades would still go to the Exchanges where internalization can occur at the NBBO 2) Each Exchange has different facilitation rules. I believe the floors (CBOE, PHLX, AMEX and PSE) have to expose the client side of the trade to the crowd (not necessarily the marketplace) for a couple seconds then the trader can "cross it" (trade against the client order) if there is no interferance. The ISE has a rule that forces the EAM to display the client side of the order in the market for 30 seconds before they can trade against it. The ISE has a rule pending that reduces the time required to wait to 5 seconds. The bottom line is that the OptEx is NOT an OTC market and will have little bearing on the overall marketplace.
It will have an effect on the market if all of Schwab's order flow is only shown to the market for five seconds before being crossed. How much market share does Schwab have in options
You figure that Schwab customers (and probably Fidelity) are probably a good source of "dumb" order flow that all options market makers love. "Dumb" because they pay higher commissions compared to customers who use IB or Datek or Ameritrade, etc. Just a speculation, but I would figure that Goldman will probably give Schwab customers access to their research (after Goldman finishes their arrangement with TD Waterhouse since TD Waterhouse has bought up option specialists and market makers, too).
The "crossing" of orders on the floor is commonplace, and has been for years, and I am not sure if that is how I read this new Optex routing. We have known for years about "back room crossing" with stocks via major firms (they sometimes use the regional exchanges to add "propriety" to the trades), but I am reading this that the orders can simply be internalized, without any exchange floor display....not sure yet, and welcome all comments.. don