When IB Best Isn't Best

Discussion in 'Options' started by Pabst, Feb 14, 2002.

  1. Pabst


    Common problem. A put for example is 1.00 bid at 1.05, light on the offer. I go to lift the offer on "best" and now the market locks at 1.05 with me the bid (always on ISE) and another exchange still offered. It happens even when the offered exchange has auto-ex functioning. How can best not be best. If someone other then ISE is offered should I not be routed there first.
  2. You need to directly route the order to the exchange that has the low offer.

    I never use BEST for options, I just route it to a specific exchange.
  3. def

    def Sponsor

    if the other exchanges were truly offered, wouldn't they hit that market?

    if you see this happen, cancel the order and reroute to the exchange shows the best price. I imagine that more often than not you will not get a fill.
  4. Htrader

    Htrader Guest

    I run into this problem alot. Usually, AMEX will be on the offer/bid and BEST will just ignore it and I have to route manually. I believe BEST will hit any exchange with auto-ex on. Oftentimes an exchange will have auto-ex turned off, AMEX often does, but TWS will still show that they have auto-ex on, lead you to think that BEST should have routed to there.

    A solution would be for IB to change their BEST algorithm. Route to an auto-ex exchange whenever possible, but if there is no auto-ex available, then take whatever is there rather than just routing my order to ISE.
  5. def

    def Sponsor

    IB does that - it routes an order to the exchange posting the best price. If you have a limit order it has to sit someone. When push comes to shove, wouldn't you want your limit order sitting on an exchange that is electronic rather than in the hands of a specialist? If an exchnage shows an offer that matches the bid, IB will automatically re-route the order.

    Re the autoex and the exchanges: I heard via the grapevine that the pseudo official AMEX policy is that they never turn off auto-ex. As we know this is untrue. As I said in the last post, if you think you should be filled, try routing to the exchange showing the price.
  6. With all due respect def, IB's routing system never hits the best price if the ISE is available. This has been the case since the ISE has come online. Possibly the problem is coupled with the annoying bulletins IB puts out every time a new ISE option series is opened. I know that IB is a founding member of the ISE; however, your claim of having a best execution system is questionable if order flow payments determine routing. :mad:
  7. def

    def Sponsor

    IB sends orders for options based upon best price.

    Here is the official statement:
    Order Routing And Payment For Order Flow Disclosure

    IB's Order Routing System: Interactive Brokers offers its customers two primary methods of routing their orders to the market for execution. First, IB customers may directly route their orders to a particular market of their choice. For stocks and options traded at exchanges or ECNs, however, IB recommends that customers use IB's intelligent Best Execution Order Routing System, which is designed to optimize both speed and price of execution. IB's Best Execution system continually scans competing market centers and automatically seeks to route orders to the market center posting the best price, taking into account factors such as the availability of automatic order execution. For securities traded on ECNs, IB also offers "Best ECN" Routing, which will look for the best prevailing price for the customer's order among available ECNs, excluding traditional exchanges.

    Automatic Execution and Price Improvement: Electronic Communication Networks ("ECNs") and exchange automatic execution systems generally execute orders instantaneously at the posted bid or offer, rather than routing orders to a specialist or a trading crowd for manual handling. Wherever possible, when an IB customer selects "Best Execution" or "Best ECN" routing, IB routes eligible customer orders to exchanges and market centers currently offering automatic execution of orders. While automatically executed orders do not have an opportunity to be executed at a price better than the market center's posted bid or offer, automatic execution of customer orders is faster and more certain than other methods of execution and eliminates execution of orders at prices inferior to the prices posted at the market when the order was routed to it. IB believes that use of the IB Best Execution System to route orders to the exchange or market center with the best posted price, combined with automatic execution, provides IB customers overall with the most favorable order execution.

    Payment for Order Flow: IB does not generally accept payment for order flow for stock orders. An exception exists, however, for certain orders routed to the Island ECN. Island pays subscribers, such as Interactive Brokers, a rebate of $.0010 (1/10th of 1 cent) per executed share for orders that add liquidity to the Island book. This rebate is credited against the fees charged by Island to execute other orders.

    IB receives order flow payments in varying amounts from U.S. option exchange specialists and/or market makers pursuant to the mandatory marketing fee programs that have been adopted by the exchanges and approved by the SEC. Receipt of payment for order flow under these exchange programs plays no role in determining where IB routes non-directed customer orders.

    Affiliate Relationships: IB's affiliate Timber Hill LLC acts as a specialist or market maker on all U.S. option exchanges. If Timber Hill is a specialist or market maker on an exchange that has posted the best bid or offer for an option contract for which an IB customer has placed an order, and another exchange is also posting the same best bid or offer, IB will break the tie by sending the order to the exchange where Timber Hill is acting as specialist or market maker. Timber Hill LLC is also an active trader of stocks for its own account, and is a registered market maker participating in SuperSOES for certain Nasdaq stocks. IB customer orders can trade with Timber Hill orders if Timber Hill has posted the best bid or offer for a Nasdaq security and an IB customer order is matched with a Timber Hill order pursuant to the execution algorithms used by SuperSOES and the ECNs.
  8. Pabst


    Def I was locked out yesterday by ISE on best, quickly saw that the offer was on PSE, and was quick enough to get 5 lots off on PSE, while the whole time I was unable on my first order at ISE. There is no doubt in my mind that IB goes to ISE first virtually regardless of whether they are there or not. And by the way I'm not bashing ISE, in the past few weeks I've gotten ISE fills on limits that I couldn't have gotten as a MM on the floor.
  9. def

    def Sponsor

    deser trader,

    the above post is IB's policy on order flow. This is the first I head of any complaints on option routing. If you think you should get a better fill, send me details of an order and i'll pass along to someone who can study the audit trail (can probably do the same to the help desk but i can't guarantee who will look at it).

    as for the ISE to clarify, Timber Hill is not a founding member. I don't know about all the politics but I assume we joined as our systems are ideal for electronic markets. We do not agree with the rules that allow market makers to treat retail differently than broker/dealers. In the end, it is electronic and currently is the best place to hold a limit order.

    understood, if I can get details to prove the point it will help.
  10. No need to fix anything but the policy statement above. Anyone who has traded IB's system probably avoids the BEST option. Otherwise, you end up crossing the market with your own order. I don't tend to fix things where knowledge gives me an edge.

    I was one of IB's largest retail option customers at one time and have moved the majority of my business elsewhere. The primary considerations in this decision were poor TWS order entry mechanics, non-competitive margin policies on short options and IB's attitude that these items were not important enough to fix.
    #10     Feb 15, 2002