IB - Futures price capping, denied ability to trade

A

atrocious

IB has implemented an arbitrary 2% price cap from the previous close on every futures contract, prohibiting one from entering orders before the open above/below that level. No other futures broker does this, for obvious liability reasons. Unlike the exchanges themselves, IB's price cap bands rely on a static close price, not the indicative opening price. I ran into this on the most liquid Nikkei futures contracts just last week (August 10) when buy orders were capped to 15060 on N225, N225M, and SGXNK (Sep 2014). All three markets opened above that level, thousands of contracts traded, and IB denied one the ability to participate as a buyer on that open.

In that case, those "capped" prices would have filled after the open, but we only know that in hindsight. What if ES opens -40 on geopolitical strife over the weekend, next trade is -50? What if CL opens +2 due to a supply disruption, next trade is +3? Agricultural futures routinely open up/down limit - if you don't fill on the open, you may never fill.

If IB is using more draconian price caps than the exchanges themselves (see below), customers need to know what recourse they have if denied a fill and appropriately manage risk by replacing the denied fill at a far inferior price. That cost can easily run $1000's of dollars on a mere one lot in a limit up/limit down scenario.

Here's why these price caps are archaic - the exchanges have their own!

GLOBEX/ECBOT/NYMEX have price banding:

http://www.cmegroup.com/confluence/display/EPICSANDBOX/GCC+Price+Banding

ICE/IPE/NYBOT have reasonability limits and interval price functionality

https://www.theice.com/publicdocs/futures_us/no_cancellation_range_and_reasonablity_limits.pdf

OSE.JPN has dynamic circuit breakers:

http://www.ose.or.jp/e/derivative/5378

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I implore IB to reconsider this policy specifically in futures where exchanges have their own clearly defined price caps. By all means, have TWS send a mandatory warning to customers placing such orders, but do not deny one the ability to participate in the open. Modification of customer orders without their consent is a slippery slope. It creates huge stress for the customer, and I contend in a volatile situation, it also creates significant liability for the broker.

I would be happy to discuss this at length with anyone at IB, thanks for listening.
 
First the daily "exposure fees" and now this. Individually and together they are both unnecessary and counterproductive. But most notably they are inventions of, and are unique to, Interactive Brokers, a firm that has, unfortunately, lost sight of who they are and from whence they came.
 
Similarly, IB will cap limit order prices for stocks based on the last print. This may not be a problem during regular market hours but during pre and post-market, there can be erroneous prints on stocks that cause you not to be able to submit an order at a reasonable price - it gets capped. And if there is news on a stock in pre and post-market, you can get seriously hosed without any recourse. I have been impacted by these new capping rules probably 3 or 4 times and everytime I complain the response is that they are aware of the capping rules and they are working as designed even though in the situations I have encountered, any rational person would agree that all their capping rules are doing is hurting their own customers. I have even suggested a very simple workaround to this issue, but I am almost positive they have not implemented it. For gods sakes, at least show a dialog box or two that you have to go through to confirm the price of your order. Don't just not allow it.
 
Actually shocked that this hasn't been all over this forum. The price capping is insane. The equity options market may be the worst of all markets.

I recently was trying to offer some out of the money calls that expired in a day or two and the market was zero bid .15 ask. There was a few hundred contracts offered. I tried to offer the calls at .10 and my offer was capped at .45???

Absolutely insane and they will tell you that they are protecting me. Funny thing is that I'm pretty sure this type of "price adjusting" is illegal.

Just wait until the market really moves. What a disaster this will be.
 
mskl said:
Funny thing is that I'm pretty sure this type of "price adjusting" is illegal.
More...

This happened to me too a few weeks ago and in hindsight I should have demanded a fill, it cost me several hundred dollars.

Anybody want to get CFTC or NFA interpretation on this?

How can a broker modify the price on held, non-discretionary orders? It seems illegal or at a minimum a breach of fiduciary duty.
 
mskl said:
Just wait until the market really moves. What a disaster this will be.
More...

Yes, so far I have been lucky that I have not been majorly screwed. But there was one time where I just wanted to get the hell out of a position on a bid in the aftermarket (there was earnings news on the company), and my price was being capped. So IB was essentially saying that it was safer for me not to get flat when a company had earnings out. It was effing insane. Fix this IB. It is unbelievable that I cannot control my own risk when I want to. You do not know better than me how to control my own risk.
 
Thanks for the responses everyone, hopefully we can keep attention on this. It seems as though no one cares in this low volatility environment because these 2% "events" are triggered less frequently, but I can count dozens of examples from the 2008 era where I had to participate in such gap situations, most through IB before this capping policy was in effect. NONE were remotely considered a "disorderly" market.

What really bugs me is there is zero transparency on how these caps are implemented. Can you imagine the horror an option trader (reacting to news) would face if a hypothetical option (last trade 10 cents) has 100 contracts offered at 50 cents. You bid 50 cents for 100, IB deems it "disorderly," caps you to 45 cents and displays your bid. What do you think will happen to that offer?

Also if there's geopolitical risk on a Sunday night, news after hours (or during the Asian session), is customer service authorized to override a cap on liquid products in timely fashion (<5 minutes)? It seems as if most are running into a brick wall of "that's our policy, tough luck."

PS - I've been with IB for the better part of a decade, it's a great place to trade derivatives and I think their management is one of the most forward thinking in the industry. But this policy is incredibly short sighted and will rear its ugly head when volatility returns. At a minimum, allow it to be relaxed in cases where exchanges have their own price banding mechanisms, or more preferably, allow a manual override using a confirmation window in TWS.
 
I missed a fill today because of the caps. I have escalated the issue and hope that IB will re-evaluate what they are doing.

I have also shown them about 10 crazy examples of the price capping over the last couple of months but at this point nothing has changed.

I'm not here to bad mouth IB because like the previous response, I have also been with them forever (since 98) and have nothing but positive things to say about the company and what they have done for the retail trader and have faith that the right person will eventually see this issue and it will get fixed.

I will keep you posted if I hear anything.
 
I've hit this problem in equities and it's bad there too. If a stock gaps enough, even for just a dividend never mind serious news, you may be effectively unable to participate in the premarket or open until some of the new trades go off.

I agree the easiest thing, if they're worried about idiots using market orders or fat fingering limit prices, is to have an extra confirmation dialogue box to make it possible to override. "Your order is 20% below the prior close, are you really sure you want to so this?"
 
We have had this problem with IB as well and we are giving up in frustration. Our problem is that we are using their API for trading purposes. Does anyone know of other brokers who do not have this price capping behavior and also offer an API for equities trading?
 
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