IB can route your orders using its Smart technology, or let you route them to the exchange of your choice. I would suggest you use the Smart routing both because you will receive better fills (pre-open or during RTH) and also because the commissions are much lower. IB does provide both the NBBO and the BBOs of the individual exchanges.
freehouse, Thanks for the exhaustive research! I agree, the exchange is not liable for a trade-through based on their opening rotation. That makes sense with limit orders since their orders obviously won't be part of the BBO. But this wasn't a trade-through, it was a market order. For equities, there is a reasonable amount of time to fill a market order once the stock is open for trading. Whether you route the order to a third market, ECN or direct to the listed exchange is irrelevant. Even though there is not a central exchange for options, I think there should be a central opening regarding market orders. That way if your exchange is not open, you're still due the ask at the time if the option is trading. This happens all the time on OTC stocks and there are a lot more MM's than the 6 options exchanges. I don't think it's an unreasonable request, do you?
So if i send in limit order before opening using smart. Does the order gets send to one of the options exchange before opening or will it reside in IB's servers until bid/offer appears on 1 exchange then smart routing starts ? you seem to imply that the order will be send to the exchange before opening. So say IB's order ticket has exchange set to "SMART", primary exchange default to "AMEX", does the order get send to "AMEX" before opening ? thank you
The order will be sent to one of the exchanges before the open. If the issue is singly listed, we will route the order to the only possible destination. Otherwise, we chose the destination utilizing an algorithm that considers various factors.
IBsoft, How does the system know that a market center has opened but the one where my order is placed hasn't opened yet? Also, you stated you offer individual BBOs but the commissions are higher to route to my own destination. Is this done online on through a broker on the phone? Thanks for the help.
We receive the market data from opened exchanges. Those that are not sending it out are closed. Online.
I'm not sure this is true. For instance, unless you direct route an option order, Ameritrade routes it to a specific exchange that they determine for each option series. I called them up because my orders weren't getting executed even when I was trying to sell at the inside bid,and my orders were locking and even crossing the market, and they told me this. They also said that option orders with Ameritrade are not guaranteed to get the NBBO. I don't know Schwab's rules, but whenever I trade SPY options there, they always get routed to the ISE, even if the NBBO is elsewhere, and my orders have crossed the market (and not gotten filled) several times.
There is an obligation of the exchange where your order was routed to not cross or lock the market though. They have the responsibility of linking to the other exchange and getting your order executed. And that IS Ameritrade's responsibility to ask the ISE for an execution of your order if your order crossed the market. The only thing you have to do is make sure your Time of Sales is correct.
Stay well away from the Boston exchange on option openings. You can't get fills and you can't get cancels.