Change in the way SPX orders are filled

[FSU]

Not sure if any one else noticed, but the Cboe changed the way customer orders are filled in the SPX. It used to be that there was customer priority, so if your order was marked as customer, you got priority over all other traders. This was especially useful in tighter markets or if you changed the market. Now the orders are filled on a pro-rata basis (based on the size of your bid or offer). So if the market is 1.40 -1.55 and you place an order to sell 1 at 1.50 and a market maker matches your offer for 200, you basically wont get filled unless the entire offer is taken out.

On the plus side, this was done when they introduced their new hybrid system for spx quotes so there are now multiple quoters and tighter markets.

 

[Robert Morse]

I'm tired, so I might have read it wrong, but it looks like they have different treatment for SPXW and SPX. They consider SPXW a retail offering and SPX an institutional offering. Looks like the change is only on SPX. I might be wrong....

https://www.sec.gov/rules/sro/cboe/2018/34-83089.pdf

http://cdn.batstrading.com/resources/release_notes/2018/SPX-Conversion-to-Hybrid-Platform.pdf

"Electronic allocation on simple and complex order trades will be pro-rata with no customer priority or Market-Maker participation entitlements."

 

[Abundance Magnet]

I'm tired, so I might have read it wrong, but it looks like they have different treatment for SPXW and SPX. They consider SPXW a retail offering and SPX an institutional offering. Looks like the change is only on SPX. I might be wrong....

https://www.sec.gov/rules/sro/cboe/2018/34-83089.pdf

http://cdn.batstrading.com/resources/release_notes/2018/SPX-Conversion-to-Hybrid-Platform.pdf

"Electronic allocation on simple and complex order trades will be pro-rata with no customer priority or Market-Maker participation entitlements."

Any update on the policy? Does this hurt retail traders?

 

[Robert Morse]

Any update on the policy? Does this hurt retail traders?

I would say if it did not benefit CBOE permit holders, they would not have pushed for it. I would say this makes it harder for a retail customer to buy on the bid and sell on the offer. So, yes. Yet another rule change the SEC should have rejected.

 

[FSU]

I would say if it did not benefit CBOE permit holders, they would not have pushed for it. I would say this makes it harder for a retail customer to buy on the bid and sell on the offer. So, yes. Yet another rule change the SEC should have rejected.

I don't know if this is necessarily correct Robert. Although customers lose priority, this has an effect of tightening quotes and providing larger size on those quotes. So some bad and some good.

The quotes in the SPX have definitely gotten tighter. I now see .10 wide quotes in the out of the money Sept and Oct options. Pretty tight and equating to .01 quotes in the SPY.

 

[Robert Morse]

I don't know if this is necessarily correct Robert. Although customers lose priority, this has an effect of tightening quotes and providing larger size on those quotes. So some bad and some good.

The quotes in the SPX have definitely gotten tighter. I now see .10 wide quotes in the out of the money Sept and Oct options. Pretty tight and equating to .01 quotes in the SPY.

You pay attention more than me. That said, I believe not only in customer priority but also time order priority. I believe customer priority should preempt time order priority because it is a single list. I could make a case for time order priority taking a back seat to customers in options that are multiple listed. This would provide an incentive to make tighter more liquid markets.

 

[FSU]

You pay attention more than me. That said, I believe not only in customer priority but also time order priority. I believe customer priority should preempt time order priority because it is a single list. I could make a case for time order priority taking a back seat to customers in options that are multiple listed. This would provide an incentive to make tighter more liquid markets.

I agree with you Robert, just mentioning that some good came from the rule change. You are right, customer and time priority are tough to give up.