Execution order for complex orders/spreads

S

sysdevel99

How does the complex order book work?
Do retail orders get preference or is it supposed to be first in first out?

I had serious issues getting fills with tastyworks on basic call spreads so I started an experiment between tastyworks ib and thinkorswim.
Every day I submit the exact same spread about 15 mins before close. After two weeks of doing this (in either qqq spy or Iwm) the spread got filled 8 times on ib and one time on tos. Not a single fill with tastyworks. I know ib/timber hill used to make a difference but I thought they are done market making so obviously something else is making a difference on fills. I use smart orders on ib and also on tos and tastyworks (non directed orders) and submit them in the mid price.
 
This is what I expect:
  • TD sends their SMART orders to a market maker but it resides on the COB of an option exchange.
  • IB holds their spreads in an internal option dark pool where you can interact with other IB clients. IB sends your order to an option exchange only when they deem it marketable.
  • Tastyworks-I have no information.
Our Option SMART route works like TD. We route to an Option Market Maker (Or group of them) but your order resides on one of the COBs made available to all public customers. May I ask which order you entered 1st, 2nd and 3rd? I have had no complaints from our option customers from SMART routed equity option orders. (that avoid the maker/taker fees too)
 
Robert Morse said:
May I ask which order you entered 1st, 2nd and 3rd?
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Thanks for the initial feedback.
The orders were in random order (I switched them around each day) - the one time where I got filled on TOS - TOS was the first in the order list/first submitted. Other times it was also first but I got filled on IB anyway. When tastyworks was first second or third it still never got filled. Once the order got filled on one broker I canceled it on the others.
 
Just to add a bit more,

Different exchanges have their own COB's. You may be bid for a spread on one exchange and another your spread is offered at another and you wont be filled.

I am most familiar with the CBOE's COB. Here it is first in first out. Market Makers cannot rest orders in the COB, they can only interact with spreads already there. You can actually view their COB here http://www.cboe.com/cob/

Also depending on the product and the size of the order, different brokers send spreads in different ways. For example TOS and IB will send orders under a certain size in the SPX to the COB, over that size it will go to a broker in the pit.

I have found that I get the best fills on spreads at the CBOE. When you are experimenting with fills, try directing the order here. A broker may have an incentive to direct the spread to another exchange and receive money for providing liquidity.

Your spread may also "auto fill" if both sides are offered and bid on the exchange the spread resides.

Also I have noticed with IB, (at least with the SPX which is single listed) that when you enter a spread, it will tell you if that spread is bid/offered in the COB (by giving you the spread price bid/offer)
 
Robert Morse said:
This is what I expect:
  • TD sends their SMART orders to a market maker but it resides on the COB of an option exchange.
  • IB holds their spreads in an internal option dark pool where you can interact with other IB clients. IB sends your order to an option exchange only when they deem it marketable.
  • Tastyworks-I have no information.
Our Option SMART route works like TD. We route to an Option Market Maker (Or group of them) but your order resides on one of the COBs made available to all public customers. May I ask which order you entered 1st, 2nd and 3rd? I have had no complaints from our option customers from SMART routed equity option orders. (that avoid the maker/taker fees too)
More...

I used tastyworks to submit a SPX order, and could instantly find it on CBOE COB. So I assume tastyworks follows the TD way you mentioned, at least for SPX orders...
 
iprome said:
I used tastyworks to submit a SPX order, and could instantly find it on CBOE COB. So I assume tastyworks follows the TD way you mentioned, at least for SPX orders...
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Keep in mind SPX is different than QQQ the OP is referencing. As a CBOE product it only trades on CBOE so it will trade the same regardless of broker except for the cutoff between sending to the floor vs electronic book FSU alluded to. QQQ options are listed on a bunch of exchanges so there is a lot more variability in how orders end up based on routing.
 
FSU said:
Just to add a bit more,

Different exchanges have their own COB's. You may be bid for a spread on one exchange and another your spread is offered at another and you wont be filled.

I am most familiar with the CBOE's COB. Here it is first in first out. Market Makers cannot rest orders in the COB, they can only interact with spreads already there. You can actually view their COB here http://www.cboe.com/cob/

Also depending on the product and the size of the order, different brokers send spreads in different ways. For example TOS and IB will send orders under a certain size in the SPX to the COB, over that size it will go to a broker in the pit.

I have found that I get the best fills on spreads at the CBOE. When you are experimenting with fills, try directing the order here. A broker may have an incentive to direct the spread to another exchange and receive money for providing liquidity.

Your spread may also "auto fill" if both sides are offered and bid on the exchange the spread resides.

Also I have noticed with IB, (at least with the SPX which is single listed) that when you enter a spread, it will tell you if that spread is bid/offered in the COB (by giving you the spread price bid/offer)
More...
Do you know how they decide what the size cutoff is on pit vs electronic? It seems to randomly change, usually it's 10 contracts on a spread but I've seen as low as 1 going to the pit and as high as 20. Since I've never been filled in the pit I always ended up cancelling and cutting my order by 1 until I figured out that day/hour/minute's cut.
 
I don't really do much on the equities side but aside from CBOE specific products I thought complex option trades went to the COB on ISE? Or is this old info?
 
Sig said:
Do you know how they decide what the size cutoff is on pit vs electronic? It seems to randomly change, usually it's 10 contracts on a spread but I've seen as low as 1 going to the pit and as high as 20. Since I've never been filled in the pit I always ended up cancelling and cutting my order by 1 until I figured out that day/hour/minute's cut.
More...
In general, broker dealer orders are handled by floor brokers and customer orders use their electronic order book.
 
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