IB and new CME Cancel/Modify

[Businessman]

http://www.cme.com/files/march_benchmarks.pdf

Some products are less than 25:1.

The high volume and popular products such as the
The e-mini S&P 500, Nasdaq 100 are 10:1.

Still not 5:1 but alot closer.

If you look the volume ratio for the S&P its 1:1, this means
the 1 lotters could end up causing IB to be charged because
they are doing such low volume!

I hope the 1 dollar charge at this stage is just an estimate.
And it will come down in future as the traders who do a lot
of messges get discouraged or IB end up generating more
reveneues than they expected.

 

[IBsoft]

Quote from Businessman:

For days when you don't get filled, say you are trading an
open range breakout, and the market doesnt breakout
either up or down then you will be charged $2.

Which seems a bit unfair as you didnt modify or cancel the
order, it just didnt get filled on the day.

When a day order expires at the end of the session, that one "cancel" does not get charged.

 

[squeeze]

Quote from Businessman:

Some products are less than 25:1.

The high volume and popular products such as the
The e-mini S&P 500, Nasdaq 100 are 10:1.

Still not 5:1 but alot closer.[/B]

O.K but why not just pass on the message limit to traders?

This seems the fairest thing to do otherwise traders using
IB will be at a potential disadvantage to traders using
a direct link to globex. An arbitrary 5:1 ratio seems to strongly
disadvantage IBs own customers.

If IB just monitored the message to trade ratio for each trader at the end of each day and put a fee on anyone exceeding the limit this would be the fairest way to implement the new rules.

 

[Businessman]

Quote from IBsoft:

When a day order expires at the end of the session, that one "cancel" does not get charged.

That sounds great in principle, but if i get filled a few seconds before the end of session when do i close out my position?

Would be nice if you didnt charge for any cancels after say
15:45.

But i suppose i can live with a $4 dollar fee every
day my 4 entry orders dont get filled, as i prefer to cancel my
entry stops a few minutes before the end of the session.

 

[Businessman]

Quote from squeeze:

O.K but why not just pass on the message limit to traders?

This seems the fairest thing to do otherwise traders using
IB will be at a potential disadvantage to traders using
a direct link to globex. An arbitrary 5:1 ratio seems to strongly
disadvantage IBs own customers.

If IB just monitored the message to trade ratio for each trader at the end of each day and put a fee on anyone exceeding the limit this would be the fairest way to implement the new rules.

That does sound fair, but it seems that CME are slapping
a fixed $2000 dollar fee per product per day which isnt exactly
fair either. Big brokers like IB should be able to charge a fraction
of what a smaller broker might charge because the fee is fixed.
If IB dont, then they may well make a profit out of this compared
to other brokers.

I would guess there are probably a lot different charging models
IB could have used to raise that $2000, none of which would
satisfy everyone. I personally am going to be charged some
days (days when i dont get filled and cancel a few minutes before
the close) even though in the long run my ratio will be well within
limits.

 

[OldTrader]

Just thought I'd mention that it looks to me like stops would automatically cancel at 3PM CST IF you have elected to not have stops triggered after RTH. All day orders would be cancelled after 3:15PM...so that cancellation charges would not apply after the above times.

Frankly though, it's hard to see how this is going to impact me. I never figured out my cancellation/modify rate to my execution rate, but I highly doubt whether it exceeds 5:1.

OldTrader

 

[squeeze]

Quote from Businessman:

That does sound fair, but it seems that CME are slapping
a fixed $2000 dollar fee per product per day which isnt exactly
fair either. Big brokers like IB should be able to charge a fraction
of what a smaller broker might charge because the fee is fixed.
If IB dont, then they may well make a profit out of this compared
to other brokers.

I would guess there are probably a lot different charging models
IB could have used to raise that $2000, none of which would
satisfy everyone. I personally am going to be charged some
days (days when i dont get filled and cancel a few minutes before
the close) even though in the long run my ratio will be well within
limits.

It's the days you don't get filled that are going to be the most annoying.

All you have to do is put in an order move it a couple of times and then cancel it and you get charged on a day when the market did not present any opportunities. This sort of example is not market abuse and is not using excessive bandwith so why should a trader that does this get slapped with a cost?

I wonder if you will see people not cancelling GFD orders when they otherwise would have in order to save money by waiting for them to be cancelled at no cost at the end of the day. Could result in a few accidents.

If other brokers choose a more reasonable way of passing on this potential cost then this could result in quite a lot of traders moving away from IB.

 

[Businessman]

I noticed on the CME page regarding this feee they want anyone
with a automated system or semi automated system to register
with them.

How long before they start charging additional fees to
anyone using an automated trading system.

 

[squeeze]

Quote from Businessman:

I noticed on the CME page regarding this feee they want anyone
with a automated system or semi automated system to register
with them.

How long before they start charging additional fees to
anyone using an automated trading system.

LIFFE has done something similar. A lot of arcade traders using auto-spreaders were hit with big bills because they did not register and were sending vast numbers of messages to the exchange.

However, I think there is a limit set so that anyone sending less than a certain number of messages per day does not have to register. The LIFFE approach is fair as small automated traders and manual traders are not affected but traders sending thousands of messages a day without doing much volume get hit with big bills. The bandwidth abusers have been reigned in without anyone affecting anyone else.

I don't know if it would be practical to register every single person using some sort of automated order entry system.
There would also be a danger in adding these sort of costs that an exchange would just end up driving away business to competitors. For instance, I am sure Eurex US would love to have some of the CME's automated volume for it's new index products.

The problem with the new IB fees are that they do not really reflect the new exchange rules and are going to disproportionately hit a lot of smaller traders whether automated or manual. I am surprised as this is the first thing I have seen IB do that is likely to really loose them customers.

Giving people a daily allowance of 25 free cancel/modifies per day per product would be a good way to solve the problems for small traders. Beyond this the ratio of messages to trades should ideally reflect the exchange limits.

 

[ktm]

I think this has bigger, more positive implications for the smaller trader. You have to think beyond the fee.

First, there is the issue of the cancel fees. Obviously there is some behavior out there that the exchanges are trying to curtail. One clue to this should be a bit of text from Barron's 5/16 issue:

By a Reuters estimate last year, options-related information represented 75% of all market data -- a traffic level disproportionate to that data's economic value. By another estimate, the ratio of option quotes to each trade has jumped from about 300 in 2001 to 2,300 today, and penny trading could puke up so many option quotes for each tick in the underlying stock price that the market's existing pipes could become clogged. The option market's central price-reporting system plans to double its capacity in July to allow some 160,000 messages per second -- but that may not be enough.

The theme of the article was the consideration of penny spreads for options. While this was focusing on CBOE options, the CME would need to follow suit to remain competitive. If options have seen an 8 fold increase in the ratio of messages to trades in the last few years USING NICKEL AND DIME SPREADS, there is no way the current systems could physically handle penny spreads. The answer is to reduce the number of quotes per trade. The only way to make that happen is by penalizing the behavior you want to modify in some form. I could see the CME going to nickel/dime spreads before long on the ES.

Personally, I found it shocking that there could be 2300 quotes for every trade. If I am right, the savings from penny spreads will far outweigh the occasional cancel fee.