For history buffs,
In the mid to late 90s, the SEC was pushing to force listing of options on multiple exchanges. Up to that time, each exchange had a monopoly on "their symbols". At the same time, anti-trust considerations prevented hand helds on the floor and generally restricted the various exchanges from seeing or trading against each other's quotes. Additionally, the auto-ex sytems available to retail traders allowed 20 contracts (sometime 10 or 50) per order to automaticaly execute regardless of the size bid or offered. This allowed a retail trader to send a series of orders electronically to hit a favorable price while taking down the hedge or offsetting position on another exchange via their auto-ex system. Thus the RAES bandits were born named after the CBOE's auto-ex system. A bandit traded on a retail basis, had feeds from all the excahges, the ability to analyze the market based on each quotes arrival and could route orders to specific destinations. When a target was identifed, the computers fired their orders. Typical positions included pure arbitrage (sell at a bid higher than another exchange's ask), conversions, reversals, boxes, flys, etc.. All were typically risk free or essentially free lottery tickets.
In this process the exchanges were sitting ducks and were quick to fight back. A number of traders were black listed and occasionally accused of market manipulation. Eventually, things got a little ugly. Sometimes you would send an order which magically wasn't fillled until the other side of the transaction disappeared. Of course, if you canceled, it would later execute at the worst possible price with a too late to cancel notice. The exchages were sanctioned at the time and given their wrist slapping.
A number of new regulations came down including speed bumps between orders and the requirement for manual order entry. The rules varied by exchange and have been moderated as techology has changed the game and made the market efficient.
