IB market making in options - Conflict of interest possible?

[mskl]

yes. thanks for the responses.

Does it makes sense that a "large trader" designation would change your fees to Professional and you would lose your customer priority?

I will have to review the email I got from IB but from what I recall I was designated a large trader - I don't recall the 390 orders per day but I may have hit this as well

 

[FSU]

Having a large trader designation should have nothing to do with professional customer trading status.

 

[Ryan81]

Did IB send you any kind of warning message when you got near the 390-threshold and got close to being subjected to this status? Or did it just broadside you out-of-the-blue?

I wish there was a way to check how close you are to hitting the threshold. It's absolutely something I would not want to be tagged with.

390 is not a whole heck of a lot of "orders" if you are considering that every order modification counts against that total...

Obviously, I could figure out my own daily "count" toward this total fairly easily for orders sent via the API... but I will need to see if there is a way I can get the total for the orders I send/modify/cxl in TWS. Hopefully one of IB's reports/queries will let me find this out...

And as always, Robert's contributions to this discussion are extremely helpful. Thanks for providing such useful information on this forum.

 

[Robert Morse]

Did IB send you any kind of warning message when you got near the 390-threshold

FYI: We have to track this, but it is the trader responsibility to know where they are. Your broker is not responsible for alerting you. In general, this affects RIA -with multiple accounts, automated traders and hedge funds with many trader more than a single manual trader. It is a lot of orders for one manual trader.

 

[JSOP]

This is a restriction from some option exchanges that have market makers. They don't want you competing with their market makers with customer priority. You can do this as a professional customer.

I thought that they don't allow you it is because of this non-hedging rule by CFTC, didn't know it was because of non-competition. So if you declare yourself as a professional trader, you can actually make market and earn the spread? Wow!

 

[Robert Morse]

JSOP,

CFTC is Futures. We are discussing equity option markets.

Two sided markets are allowed by the futures exchanges. You just have to limit your messages per day or you have to register as a MM. Those limits are MUCH higher than 390/day.

Bob

 

[JSOP]

JSOP,

CFTC is Futures. We are discussing equity option markets.

Bob

So options is not overseen by CFTC? Learned something new today.

My previous question, if you declare yourself as a professional trader, you can actually make market and earn the spread?

Thanks

 

[Robert Morse]

My previous question, if you declare yourself as a professional trader, you can actually make market and earn the spread?

As a Customer, non- BD, you can choose to elect professional customer status and make two sided markets. As for earning the spread, that is a complicated question.

 

[JSOP]

As for earning the spread, that is a complicated question.

Potentially I mean. Thanks

 

[Robert Morse]

Potentially I mean. Thanks

Yes. It basically allows you to volatility trade but all your markets will up date too slowly.