Thanks JR. At least a few here "get it".
Regards.
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ib must be selling order flow on options
- Thread starter monstercat
- Start date
Regards.
nobodys bashing ib. i've been with them longer than 99.9% of this board at 6 1/2 years. i have mid 6 figures with them. i have no intention of leaving them and i stated i think they're a great firm. the whole pupose of this thread was to ask why a broker with the exact same info as ib gave a different fill. the question was answered . the better fills it seems are on ise which for some reason doesn't seem to route there. ib states when they fufill there nbbo duty they then look for the highest flow payments so thats what they do
Quote from monstercat:
nobodys bashing ib. i've been with them longer than 99.9% of this board at 6 1/2 years. i have mid 6 figures with them. i have no intention of leaving them and i stated i think they're a great firm. the whole pupose of this thread was to ask why a broker with the exact same info as ib gave a different fill. the question was answered . the better fills it seems are on ise which for some reason doesn't seem to route there. ib states when they fufill there nbbo duty they then look for the highest flow payments so thats what they do
monstercat,
It is a bit more complicated than that. IB will only make a commission if it manages to get your order executed. Even the flow payments and collections only take place when your order gets executed. Hence, it is in our best interest to get your order filled.
I have looked at some stats. For competitive reasons I can't get too much into detail, but consider the following two facts:
- EWZ National Volume Distribution is 23% at ISE and 38% at CBOE.
- When one posts a non-marketable order that betters the market by a tick at CBOE and ISE, he is more likely to get a fill at CBOE. (I know that that is not what you experienced, but looking at all the cases together that is what we find).
I can't explain why the counter-party of your trade liked your order when it was posted at ISE and did not like the same order when it was posted at CBOE.
I am now dropping out of the discussion.
IBsoft
Quote from IBsoft:
monstercat,
It is a bit more complicated than that. IB will only make a commission if it manages to get your order executed. Even the flow payments and collections only take place when your order gets executed. Hence, it is in our best interest to get your order filled.
I have looked at some stats. For competitive reasons I can't get too much into detail, but consider the following two facts:
- EWZ National Volume Distribution is 23% at ISE and 38% at CBOE.
- When one posts a non-marketable order that betters the market by a tick at CBOE and ISE, he is more likely to get a fill at CBOE. (I know that that is not what you experienced, but looking at all the cases together that is what we find).
I can't explain why the counter-party of your trade liked your order when it was posted at ISE and did not like the same order when it was posted at CBOE.
I am now dropping out of the discussion.
IBsoft
I will comment on my personal empirical experiences with getting options orders to fill between Bid and Ask:
The only times I have ever gotten ANY orders filled between Bid/Ask (when I became Bid or Ask) was on ISE, and occasionally BOX. In fact, my experience has been that if your order is placed "splitting the middle" at CBOE and it fills, it is proof positive that the Bid/Ask moved such that you were effectively buying at Ask, or selling at Bid. At ISE, have many times seen my order filled immediately or near immediately when splitting Bid/Ask and the Bid/Ask does not immediately move against me when this happens. BOX on occasions will result in price improvements, but you usually have to wait a bit for those orders to execute.
Even though CBOE does a lot of volume, it has not been my experience that any of it is off the established Bid/Ask before your order goes in. You will do better to get size filled when hitting Bid or Ask at CBOE perhaps due to the depth, but there is not a snowball's chance in hell of any price improvement there.
If your order ends up at PHLX or AMEX or ARCA, it's not likely to get filled very quickly in any case.
In the past ( 2 or 3 years back ) I noticed that IB always routed to ISE by default whenever you had a LMT order which wasn't immediately marketable. Now, it seems that you are sent to CBOE or PHLX instead of ISE almost always in this kind of situation.
I believe this is the source of frustration with the original poster. There is no way to instruct IB to "prefer ISE" rather than to "prefer CBOE" in such a "tie situation". This leaves you with the only alternative being forcing it to ISE and paying a lot more in commission as a result. Or, you place it as "smart routing" and then have to cancel it and replace it, thereby generating a cancel fee.
So, the question comes up - IB used to send stuff to ISE in the past in this situation, now it goes to CBOE or PHLX which seems inferior to the OP, myself and some others in this scenario. So, why would things change like this unless there was some positive $ benefit to IB? I think the true answer is that IB believes it is a "tie situation" and therefore they can pocket the extra cash without hurting the customer, but in fact, the customer is getting a lot less chance of being filled in a favorable manner with the current scheme of smart routing.
BTW, for a future enhancement, I would really love to see the ability to prefer or avoid routes from the routing schemes in such tie situations. It would even be worth paying somewhat more than SMART, but obviously less than the "direct routing" price.
Quote from IBsoft:
monstercat,
It is a bit more complicated than that. IB will only make a commission if it manages to get your order executed. Even the flow payments and collections only take place when your order gets executed. Hence, it is in our best interest to get your order filled.
I have looked at some stats. For competitive reasons I can't get too much into detail, but consider the following two facts:
- EWZ National Volume Distribution is 23% at ISE and 38% at CBOE.
- When one posts a non-marketable order that betters the market by a tick at CBOE and ISE, he is more likely to get a fill at CBOE. (I know that that is not what you experienced, but looking at all the cases together that is what we find).
I can't explain why the counter-party of your trade liked your order when it was posted at ISE and did not like the same order when it was posted at CBOE.
I am now dropping out of the discussion.
IBsoft
I think that SMART could be improved by adding the following logic for non-marketable orders.
Before a non-marketable order is allowed to sit indefinitely at the destination where it is most likely to be executed eventually, the order should first be momentarily flashed at each of the possible destinations, in declining order of likelihood of immediate execution against hidden liquidity. If this does not result in immediate execution, then the order is laid to rest indefinitely at the default destination where eventual execution is most likely.
This optimization would have resulted in immediate execution on each of the orders discussed in this thread, and would have restored the superiority of IB's routing over all other retail brokers in all situations.
The reason why this would optimize SMART is that the markets have hiden liquidity. Hidden liquidity can include a hidden order at a destination, which can execute against your order only if your order is directed to the destination at which the hidden order resides. Hidden liquidity can also consist of an order not residing at a particular destination, but which monitors a particular destination and will immediately interact with your order, but only if your order is flashed at the appropriate destination. Note that this is a very general discussion, covering both stock and options, and is not intended to be confined to just options trading. One fundamental weakness of SMART is that it ignores hidden liquidity, and pays attention only to displayed liquidity (orders with displayed prices).
Another reason why a counterparty might like the o.p.'s order at one exchange, but the other, is that lots of unsophisticated retail traders make poor routing decisions or use brokers that provide order routing far inferior to the type provided by IB. IB can take advantage of inferior order routing by other brokers and other traders, by systematically scanning all destinations for hidden liquidity, just as I have already suggested.
IB simply hasn't yet recognized the opportunity to optimize SMART to scan for hidden liquidity. This isn't because of any dishonesty or effort to scam the customer. It is just that they haven't figured it out yet. I think that they eventually will figure it out, because I believe that they really do want SMART to be the best possible order routing.
jim,
Where is there hidden liquidity in the options mart? In my experience, posted size of either side of the market has been very accurate.
Where is there hidden liquidity in the options mart? In my experience, posted size of either side of the market has been very accurate.
Quote from jimrockford:
I think that SMART could be improved by adding the following logic for non-marketable orders.
Before a non-marketable order is allowed to sit indefinitely at the destination where it is most likely to be executed eventually, the order should first be momentarily flashed at each of the possible destinations, in declining order of likelihood of immediate execution against hidden liquidity. If this does not result in immediate execution, then the order is laid to rest indefinitely at the default destination where eventual execution is most likely.
This optimization would have resulted in immediate execution on each of the orders discussed in this thread, and would have restored the superiority of IB's routing over all other retail brokers in all situations.
The reason why this would optimize SMART is that the markets have hiden liquidity. Hidden liquidity can include a hidden order at a destination, which can execute against your order only if your order is directed to the destination at which the hidden order resides. Hidden liquidity can also consist of an order not residing at a particular destination, but which monitors a particular destination and will immediately interact with your order, but only if your order is flashed at the appropriate destination. Note that this is a very general discussion, covering both stock and options, and is not intended to be confined to just options trading. One fundamental weakness of SMART is that it ignores hidden liquidity, and pays attention only to displayed liquidity (orders with displayed prices).
Another reason why a counterparty might like the o.p.'s order at one exchange, but the other, is that lots of unsophisticated retail traders make poor routing decisions or use brokers that provide order routing far inferior to the type provided by IB. IB can take advantage of inferior order routing by other brokers and other traders, by systematically scanning all destinations for hidden liquidity, just as I have already suggested.
IB simply hasn't yet recognized the opportunity to optimize SMART to scan for hidden liquidity. This isn't because of any dishonesty or effort to scam the customer. It is just that they haven't figured it out yet. I think that they eventually will figure it out, because I believe that they really do want SMART to be the best possible order routing.
Wouldnt that flash at each exchange cost you $1.20 of cancelling fee each?
Quote from IBsoft:
monstercat,
It is a bit more complicated than that. IB will only make a commission if it manages to get your order executed. Even the flow payments and collections only take place when your order gets executed. Hence, it is in our best interest to get your order filled.
I have looked at some stats. For competitive reasons I can't get too much into detail, but consider the following two facts:
- EWZ National Volume Distribution is 23% at ISE and 38% at CBOE.
- When one posts a non-marketable order that betters the market by a tick at CBOE and ISE, he is more likely to get a fill at CBOE. (I know that that is not what you experienced, but looking at all the cases together that is what we find).
I can't explain why the counter-party of your trade liked your order when it was posted at ISE and did not like the same order when it was posted at CBOE.
I am now dropping out of the discussion.
IBsoft
Thank you IBsoft for this response. It is a reasonable and acceptable answer. There are other areas where I like IB. For instance, I do not know of any other broker who give great commission rates for penny (less than 0.05 and 0.10) options. I think that they deserve recognition on this,and I want to point it out.
Quote from Nasdaq5048:
Wouldnt that flash at each exchange cost you $1.20 of cancelling fee each?
Good point, that flashing options orders won't be free, though I don't know about the specific fee amounts involved, and the credits given to reduce those fees when executions actually occur.
This cost is one reason why each individual customer would need to be able to choose whether or not to enable such scanning for hidden liquidity, depending on his own individual needs and strategy and expectations.
Cancel fees are much smaller or non-existent with stocks, so that SMART scanning for hidden liquidity would be more cost-effective and more frequently used for stocks than for options.
I also agree, and I think that the point about cancel fees supports this idea, that customers do need to be given much more control over customizing routing logic, with preferences favoring some exchanges over others, so that it will be appropriate to what the particular customer is doing. This thread's example shows the need for such customization. Such customization would both help to maximize quality of execution price, and also help to minimize order cancel fees.
It is our job, as customers, to persuade IB of the need for these improvements. We can't do this job by insulting IB employees and making extremely unfair, untruthful, disrespectful, and profane accusations against them. We can't do this job if we let others get away with unfair attacks and smears on IB. The people who attack IB in this destructive and vindictive fashion are really creating a toxic environment which makes it more difficult for any constructive communication and improvements to occur.
Another reason why the o.p.'s counterparty liked his order at one exchange, but not another, might be related to fees for adding and removing liquidity. I suspect that the counterparty remained firm at ISE with a hidden order, instead of routing to take the o.p.'s order at CBOE, because doing this would have forfeited the counterparty's fee for adding liquidity at ISE and required him to pay for removing it at CBOE.
Order routing decisions are distorted by lots of market inefficiencies, ranging from market rules and fees, or just sheer stupidity or laziness. IB's SMART router should be enabled to take advantage of these inefficiencies.
Quote from jimrockford:
Good point, that flashing options orders won't be free, though I don't know about the specific fee amounts involved, and the credits given to reduce those fees when executions actually occur.
This cost is one reason why each individual customer would need to be able to choose whether or not to enable such scanning for hidden liquidity, depending on his own individual needs and strategy and expectations.
Cancel fees are much smaller or non-existent with stocks, so that SMART scanning for hidden liquidity would be more cost-effective and more frequently used for stocks than for options.
I also agree, and I think that the point about cancel fees supports this idea, that customers do need to be given much more control over customizing routing logic, with preferences favoring some exchanges over others, so that it will be appropriate to what the particular customer is doing. This thread's example shows the need for such customization. Such customization would both help to maximize quality of execution price, and also help to minimize order cancel fees.
It is our job, as customers, to persuade IB of the need for these improvements. We can't do this job by insulting IB employees and making extremely unfair, untruthful, disrespectful, and profane accusations against them. We can't do this job if we let others get away with unfair attacks and smears on IB. The people who attack IB in this destructive and vindictive fashion are really creating a toxic environment which makes it more difficult for any constructive communication and improvements to occur.
What I understand from your proposition is that the customer should decide on the trade-offs of price quality, commission, etc, on the tradestation.
One thing I want to add is that it may be easy for people to give all sort of logical point of views/suggestions, but one should also consider the potential difficulties in implementating all these things from a software engineering/operational point of view.
As in any other things in life, making propositions takes less time, but implementing them can be demanding and not easy.
So I loud IB for implementing some of your earlier suggestions, and thank them for listening. Obviously they cannot accept any suggestion made by everyone. So they have to use their own judgement. I read a paper about the development of this firm. Their chairman had a great vision and made it happen. I would not be surprised if their stock is doing well.