Paying at BOX for adding liquidity

Discussion in 'Options' started by teun, Jul 20, 2011.

  1. teun


    Today I saw a higher than expected commission at an option trade that executed at the Boston Option Exchange.

    I expected a rebate of $0.45 per contract (as I clearly added liquidity) but instead got an additional fee of $0.65 per contract. The IB site actually shows that this is true, but I thought they made an error on the site:

    But the BOX site confirms the fees on the IB site:

    So the question: why you have to pay for adding liquidity at BOX while normally (on any other exchange I know) you get a rebate for this (as adding liquidity is generally seen as "good")?
  2. LeeD


    It's all supply and demand. In instruments that have tight bid-offer spread providing liquidity is paid for. In instruments that have a wide bid-offer spread (like most options) liquidity providers are plenty. So, an exchange pays for taking liquidity.

    Also a few exchanges are trying to differenciate themselves by providing an unusual rebate structure.

    The trick with IB is if a trader opts out of "smart routing", which has potential of sending trades to the exchange from which IB as a broker gets the highest rebates, IB commission often grows by an order of magnitude.
  3. you learned (the hard way I suppose) how the BOX operates under a unique 'inverted maker-taker' pricing model. This means taking liquidity earns a rebate, while adding liquidity actually incurs the cost. This is the opposite of how most exchanges with a maker-taker model operate, but it seems to work for the BOX. The market makers are willing to pay a fee to add liquidity there, and the customer orders that 'take' liquidity get a rebate. It sounds a bit crazy but its really just a different way to run a 'payment for order flow' system.