I'm fairly certain this does not make you a professional customer as referenced by Bob (he can elaborate if he'd like, but there's a 390 options orders / day threshold which to my knowledge is unrelated to the SEC large trader classification). Unless I'm mistaken, you can hit the SEC large trader threshold (and have to file as such) but remain non-pro in your options trading.
IB market making in options - Conflict of interest possible?
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I'm fairly certain this does not make you a professional customer as referenced by Bob (he can elaborate if he'd like, but there's a 390 options orders / day threshold which to my knowledge is unrelated to the SEC large trader classification). Unless I'm mistaken, you can hit the SEC large trader threshold (and have to file as such) but remain non-pro in your options trading.
I may be wrong, but it seems to me that the professionals whom Mr. Morse mentioned have that status specifically at Chicago Board Options Exchange. This exchange seems to distinguish between professional non-member traders and so called voluntary professional non-member traders. The latter designation was introduced in 2008. And in 2009, the restriction on "effectively operating as a market maker" was waived for voluntary professionals.
The introducing document states that one of the benefits from "electing this designation is that a customer’s orders no longer would be subject to CBOE’s cancellation fees."
I haven't heard about those cancellation fees before. Is it because they are no longer charged as this CBOE fee schedule seems to imply?
The introducing document states that one of the benefits from "electing this designation is that a customer’s orders no longer would be subject to CBOE’s cancellation fees."
I haven't heard about those cancellation fees before. Is it because they are no longer charged as this CBOE fee schedule seems to imply?
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We did a kind of trial at the ISE when we created a second market. It allowed anyone to post two sided, but they were second tier names. The argument was that people who wanted to post two sided would be a source of added liquidity. Nobody availed themselves of it. Everybody wants to add liquidity in SPY, AAPL and names like BAC - nobody wants to provide any liquidity outside of a handful of names. The industry argument was it would have been added liquidity in names in names that had plenty of liquidity. Market makers have an affirmative obligation to make markets and can't pull quotes under most conditions.
If you really want to make markets than consider becoming a remote market maker. Almost all of the CBOE equity market making is remote - nearby, but remote. BOX and MIAX remote is not horribly expensive and if you are already trading a ton you've probably spent the technology dollars.
The options industry is going through a new evolutionary period in the liquidity equation. Many of the midsize firms have left and the very large and the smaller MM's are pretty much the survivors. IB is leaving and now SIG and Citadel are fairly dominant. There isn't a day that goes by when there isn't a rumor as to who will leave next.
If you want to really make markets I would spend the time looking at what it would take to mount the effort. If another major chooses to exit - the vacuum created could offer a major opportunity.
If you really want to make markets than consider becoming a remote market maker. Almost all of the CBOE equity market making is remote - nearby, but remote. BOX and MIAX remote is not horribly expensive and if you are already trading a ton you've probably spent the technology dollars.
The options industry is going through a new evolutionary period in the liquidity equation. Many of the midsize firms have left and the very large and the smaller MM's are pretty much the survivors. IB is leaving and now SIG and Citadel are fairly dominant. There isn't a day that goes by when there isn't a rumor as to who will leave next.
If you want to really make markets I would spend the time looking at what it would take to mount the effort. If another major chooses to exit - the vacuum created could offer a major opportunity.
Dollar value of trades will not make you a professional customer. It will force you to get a "large trader ID'. Enter more then 390 trades on average in any given month, you will be classified as a professional customer. Note that any price change or quantity change will count as a new order for this purpose.
As a professional customer you will pay higher data fees, higher exchange fees and you will lose customer priority status. If you trade in the SPX, your orders will no longer go into the electronic book for the monthly options, they will be routed directly to a floor broker.
As a professional customer you will be allowed to make two sided markets (whether IB will allow this, I don't know).
As a professional customer you will pay higher data fees, higher exchange fees and you will lose customer priority status. If you trade in the SPX, your orders will no longer go into the electronic book for the monthly options, they will be routed directly to a floor broker.
As a professional customer you will be allowed to make two sided markets (whether IB will allow this, I don't know).
Thank you for pointing this out. I didn't know about it.
Does anybody know if all options exchanges make public who are the MMs for each instrument as ISE does? If not, is it reasonable to assume that Timber Hill LLC deals in the same options on all exchanges so one may safely extrapolate this ISE list to all of them?
For example, Timber Hill LLC doesn't deal in SPY options on ISE. Does it mean they don't deal in them at all?
Robert Morse
Sponsor
mskl,
There are a lot posts since this morning. Most are correct. Let summarize and add some. As I can't be sure what IB has told you, I assume you entered more than 390 orders per day on average over a month. To put it simply, a month with 20 trading days*390=7800 orders.
https://www.cboe.com/publish/RegCir/RG16-064.pdf
Non-broker-dealer customers that place more than 390 orders (across all exchanges) per day on average during a calendar month as determined under the counting rules in Interpretation and Policy .01 to Rule 1.1(ggg) will be designated as Professionals.
This is something you want to avoid, unless you want to trade like a market maker but not be a BD. You can make 2 sided markets and not be subject to cancellation fees. If doing that creates enough profit, then go for it. For most retail trades, this is bad. Very bad. We have systems in place to count these orders and provide reports upon request by our clients. (Keep in mind that no system you put in place to stream quotes without direct access to the exchange order book like a member/permit holder, will always be VERY slow as you have to cancel replace each bid and ask, while a member/permit holder can send one message and change hundreds of quotes. Last I did that was 2010, and I was able to change 300 two sided markets with one message.
You should also know that this does not have to be forever. At the end of each month going forward, request that your broker review your activity to see if they can place you back as priority customer. When I contacted the exchange, they were very vague on the rules for this. My best guess is that if you stay under the 390 threshold for an entire quarter, you might have the right to go back.
One other item. IB has set up their systems to prevent even Pro-cust from entering 2 sided markets. As much as I'd like to claim that is to benefit Timberhill, I can't confirm that. It is more likely that compliance has instructed them to have one rule for all to make their job easier. Of course, that is just a guess.
One other comment. Some have talked about the SEC Large Trader Rule. This has nothing to do with Option exchanges protecting their paid members/permit holders that are BDs. The other rules are there for that. I have clients that are "Large Traders." It is not a big deal. A simple filing.
Bob
Dear Bob,
are these cancelation fees still in place? CBOE's recent fees schedule sets that fee at $0.00 for the customers.
Robert Morse
Sponsor
I checked the CBOE and ISE and both have it on their schedule but at a cost of $0.00. There are 15 option exchanges. I can't check them all but it is a good assumption that for now it is not an issue. Since it is still on their fee schedule, I guess that means they can change their mind at any time.
Those fees were always calculated by broker route, not your account. So if we use a ML route to send the option orders, all their flow would be included in the statistic. Then if they were to get hit with fees in the past, they would have to have a process to assign that cost or eat it. I've never had a client get charged in my 6 years in sales.
Bob
Thank you, Bob. Your expertise embedded in your comments is really helpful.