IB doesn't internalize. The chairman even said that at a Goldman conference last night (read the seeking alpha transcript if interested as I found that a great read) and it was mentioned so many other times on this site and in their documentation. I'm guessing the order didn't show as it could have been going through a price improvement auction or other form of looking for price improvement. Settings can also be set to look for best price/low cost for example so maybe OP had one of those settings.
IB does not put my order to NBBO Bid
- Thread starter cutetrader
- Start date
Robert Morse
Sponsor
Really? They are option market makers on a few exchange and direct order flow to themselves.
IB doesn't internalize.
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IB does some internalization via ATS dark pools (under 7% of orders - see 606 report). That is not a bad because executions are faster and they they are price improving (beating the NBBO)
https://www.scottrade.com/documents/alt/InteractiveBrokersSECRule606Report.pdf
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IB does some internalization via ATS dark pools (under 7% of orders - see 606 report). That is not a bad because executions are faster and they they are price improving (beating the NBBO)
https://www.scottrade.com/documents/alt/InteractiveBrokersSECRule606Report.pdf
You have your own agenda and don't work or know about them - interesting for you to comment without doing more research as a licensed person. They do
I listened to the Goldman presentation where it is discussed (I found the presentation very interesting). Also on the presentation Investor Presentation a slide says:
"IB achieves the industry's best price improvement because we do not sell client order flow"
On another slide it says "we do NOT sell order flow to internalizers"
Then in the 606 report linked above it says:
1. IB's Order Routing System: IB does not sell its order flow to another broker to handle and route. Instead, IB has built a real-time, high-speed Best Execution Order Routing System (SmartRoutingSM), which is designed to optimize execution price, speed and total cost of execution for stocks and options. IB constantly changes and enhances the SmartRouting system to adapt to changes in markets, new exchanges, new trading rules, etc. IB's SmartRouting system continually scans competing market centers and automatically seeks to route orders to the best market, taking into account factors such as quote size, quote price, exchange or ATS transaction fees or rebates and the availability of price improvement (execution at a better price than the National Best Bid or Offer (NBBO). The IB SmartRouting system continually reevaluates market conditions and prices for pending IB customer orders and dynamically re- routes orders as necessary.
For some products, IB customers may directly route their orders to a particular market of their choice, although IB recommends that our customers use the IB SmartRouting system.
IB also operates an Alternative Trading System (ATS) in accordance with SEC Regulation ATS, on which it executes IB customer trades against each other or against one or more professional liquidity providers who send orders into the IB ATS. Order executions on IB’s ATS are faster, eliminate exchange fees and may offer price improvement compared to the NBBO. Statistical information regarding the quality of executions for orders effected through IB’s ATS (e.g., average execution speed, percentage of orders receiving price improvement, etc.) are available on the IB website at www.interactivebrokers.com or may be downloaded at:
Comagnum: sending orders to a dark pool doesn't mean internalize as there are multiple liquidity providers in the pools. The 606 does say clients receive roughly 50% of any commissions or commission equivalents from the liquidity providers.
But back to Bob and the statement that they do not sell flow: from the 606:
D. Options: Interactive Brokers does not sell its option orders to another broker to handle and route. Rather, IB employs its SmartRouting system to try to achieve the best execution for customer option orders. The IB SmartRouting system attempts to achieve an execution price at NBBO or better than the NBBO by utilizing relationships with affiliates and other liquidity providers, who may provide price improvement through the various auction and price improvement mechanisms offered under U.S. option exchange rules.
There's a little joke about a helicopter pilot who gets lost in the fog in Seattle and could not determine his position or course to steer to the airport. The pilot saw a tall building, flew toward it, circled, drew a handwritten sign and held it in the helicopter's window. The sign said "WHERE AM I ?" in large letters.
People in the tall building quickly responded to the aircraft, drew a large sign and held it in a building window. Their sign said, "YOU ARE IN A HELICOPTER." The pilot smiled, waved, looked at his map and determine the course to steer to SEATAC (Seattle/Tacoma) airport and landed safely.
After they were on the ground, the co-pilot asked the pilot how the "YOU ARE IN A HELICOPTER" sign helped determine their position. The pilot responded, "I knew that had to be the Microsoft building because they gave me a technically correct but completely useless answer."
You fell for the same joke from IB. IB was technically correct when they said they don't sell order flow. They do direct order flow to their wholly owned subsidiary, Timber Hill. Timber Hill then profits from that order flow, and thus IB profits from that order flow. Which is functionally indistinguishable from selling your order flow, certainly when it comes to IB's incentives.
This is exactly what Bob said, in fact to quote him "They are option market makers on a few exchange and direct order flow to themselves."
If you've worked with IB at all you know that they're not an honest and straightforward company. Even their rep here at ET is always providing underhanded answers that while technically correct are intended to mislead, it's in their company's DNA to do that. So don't ever take what they say at face value.
Robert Morse
Sponsor
My firm is an introducing broker to IB and we have accounts there. I never said there is anything wrong with it as it is industry practice and this is what is part of keeping your commissions low.
https://www.captrader.com/fileadmin/_migrated/content_uploads/IB_Order_Routing.pdf
Payment for Order Flow - Options: IB receives order flow payments in varying amounts (from 55 cents to 65 cents as of July 2006) from U.S. option exchanges, specialists and/or market makers pursuant to the mandatory marketing fee programs that have been adopted by the exchanges and approved by the SEC. If multiple exchanges are quoting at the NBBO for an option order and IB has discretion as to where to send the order or a portion of it, IB generally will “break the tie” by sending the order to an exchange where it will receive the most payment for the order, or to an exchange designated by the firm from whom IB will receive the most payment (typically IB’s affiliate Timber Hill LLC – see below).
Affiliate Relationships: IB's affiliate Timber Hill LLC makes markets in stocks and acts as a specialist or market maker on all U.S. option exchanges. Other IB affiliates worldwide, including Timber Hill Europe, also act as market makers on global exchanges. As noted above, for non-directed IB customer stock orders routed using IB’s Smart Routing system, if an IB affiliate is willing to provide an execution at the best available posted price or better for that stock, IB may send the order to its affiliate for an immediate automatic execution.
As specialist on various options exchanges, IB’s affiliate Timber Hill LLC may be responsible for allocating payment for order flow that is generated in its assigned options classes, depending on the design of the applicable exchange’s SEC-approved payment for order flow plan. As much as consistent with these plans, Timber Hill pays such funds to Interactive Brokers. As of July 2006, these payments range up to 50-60 cents per contract. For Boston Options Exchange orders, Timber Hill pays IB $1.00 for eligible contracts executed against Timber Hill (excluding contracts that are executed at better than NBBO).
Additionally, IB itself pays certain other broker-dealers for routing orders to IB, for IB then to execute, generally using IB’s Smart Routing system. Statistical information regarding the quality of executions for stock orders effected through IB’s affiliate Timber Hill LLC (e.g., average execution speed, percentage of orders receiving price improvement, etc.) is available on the Interactive Brokers website at www.interactivebrokers.com or may be downloaded at http://www.interactivebrokers.com/en/accounts/legalDocuments/timberHill.php
I see things very differently as I know the executions are better.
The key word is mandatory and sure, if all things are equal, why not route to a listed exchange where your affiliate is making a market if they will get an equal or better fill.
That's not the same as other imply such as SIG who say they are dishonest. Quite the opposite as they are very transparent.
When you brag about not selling order flow on an investors conference call while you're effectively doing the same thing by directing that order flow to your subsidiary you're not being upfront and honest, you're being intentionally deceptive. Or do you have a different definition of those words than I do?
We get it, you're not happy as you got liquidated. Show me another broker as open and transparent with their pricing and routing. I have no issue my option orders routed to a listed market where broker A and broker B have the best prices and my broker (being A affiliate) routing the order to broker A if the overall execution is the same or better. If I walk into a Cadillac dealer, I do expect them to sell me Cadillac parts. Looks like we'll just have to agree to disagree.