Best options broker?
- Thread starter torntech.com
- Start date
The question could be it's own thread. I would love to hear from the IB rep on this one.
I don't know the exact regulatory obligations and limitations, so take this with a grain of salt...
BUT, when you choose "SMART" on your routing, the broker will do everything he can to use your order and order information to make money-- either through fee arbitrage or by finding a way to "internalize" your order (though technically internalization doesn't happen in options, i am using the word for lack of a better one).
rmorse
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This is not an IB policy but an exchange policy. "Customer" order take priority in front of Market Maker markets. If you were allowed to make two side markets and get priority, no one would ever become an exchange member and offer depth and liquidity to the markets. If you change your status to "Pro Customer", you can make two sided markets but the costs are higher and you might lose your priority on the book.
In response to MushinSeeker's question about whether IB or TOS is better at getting a fill at the midpoint, atticus stated: "No question that IB will get you filled more often at midpoint of NBBO." Why would I care what IB, TOS or any other broker is doing "internally" to get me that better fill that I seek?
Two opposing views on options "internalization" conducted via an exchange (in this case BOX).
From IB:
http://www.sec.gov/rules/sro/bse200215/interactive091603.htm
The existing exchanges are hoping to prevent approval of BOX by invoking the bogeyman of internalization. But internalization is happening now at all the existing exchanges, where the trading crowd and the specialist provide direct or indirect payment for order flow and then internalize the orders at the NBBO. On BOX, there will not be payment for order flow, and internalization will occur only among the best bidders at prices better than the NBBO.
Internalization is bad when it refers to a lack of competition that leads to inferior prices and it is good when it is used to provide an incentive to expose orders to a competitive process resulting in superior prices.
From AMEX:
http://www.sec.gov/rules/sro/bse200215/srbse200215-229.pdf
Because broker-dealers that have a significant options business may also have a significant financial stake in BOX, the Amex believes that BOX should be required to fully disclose the relationship of the founding members and investors of BOX LLC, including their role in the market and governance, and agreements between and among the members and investors or other parties providing critical services to BOX. We are acutely concerned that option order flow providers may disadvantage other options exchanges because of routing decisions based on having a financial stake in a new exchange rather than the interests of the public customer.
From IB:
http://www.sec.gov/rules/sro/bse200215/interactive091603.htm
The existing exchanges are hoping to prevent approval of BOX by invoking the bogeyman of internalization. But internalization is happening now at all the existing exchanges, where the trading crowd and the specialist provide direct or indirect payment for order flow and then internalize the orders at the NBBO. On BOX, there will not be payment for order flow, and internalization will occur only among the best bidders at prices better than the NBBO.
Internalization is bad when it refers to a lack of competition that leads to inferior prices and it is good when it is used to provide an incentive to expose orders to a competitive process resulting in superior prices.
From AMEX:
http://www.sec.gov/rules/sro/bse200215/srbse200215-229.pdf
Because broker-dealers that have a significant options business may also have a significant financial stake in BOX, the Amex believes that BOX should be required to fully disclose the relationship of the founding members and investors of BOX LLC, including their role in the market and governance, and agreements between and among the members and investors or other parties providing critical services to BOX. We are acutely concerned that option order flow providers may disadvantage other options exchanges because of routing decisions based on having a financial stake in a new exchange rather than the interests of the public customer.