IB Quits options game!

zdreg said:
why? Timber has deep pockets which other firms don't have. they will be missed.
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Their deep pockets only provide liquidity based on their global dispersion model. Basically they are not always making narrow two sided markets unless they can lay that off somewhere else. The model takes little or no risk.
 
SoesWasBetter said:
I think the problem goes deeper. Liquid options are a penny wide and where's the edge there? Illiquid ones are near impossible to trade when you NEED to.
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Well they are NOT supposed to have an edge. They are supposed to earn money based on providing brokerage services regardless whether we profit or lose, remember? Unless they want to refund us our commissions when we lose? And they are supposed to be making market in the illiquid ones to enhance liquidity, hence the term "making a market"? And they are supposed to be compensated by the risk that they take in making a market in illiquid options.

And how are the regulators ensuring and enforcing that all transactions are to go through a central exchange if they are all getting internalized by the brokers themselves? If all the brokers are just internalizing the orders against their clients, what's gonna happen to the central exchanges?
 
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Robert Morse said:
Their deep pockets only provide liquidity based on their global dispersion model. Basically they are not always making narrow two sided markets unless they can lay that off somewhere else. The model takes little or no risk.
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if the model is nearly riskless why is Timber leaving it. is it generating negligible profits? if so why?
 
Robert Morse said:
I agree. The big issue is the fragmentation created from the 15 option exchanges and the number of contracts that are crossed without price discovery. The cost of making markets on every exchange to have access to all the order flow, still does not provide you access to that flow because of directed and crossed orders.
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WHY can't they just have ONE or a few central exchanges like the stocks or futures? It's very confusing and highly inefficient with all those exchanges each having their own rules and order-taking mechanisms that really does not benefit anyone.
 
They make markets in almost every symbol across the multiple exchanges. They preference themselves when they route and if they are best market they are entitled to 40% of the order. If they are not best - best fills and if there is a balance matching best on another exchange would get it shipped unless someone matched on the initial trip.
Clearly it wasn't worth the capital anymore
 
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