that is capitalism. the marketplace decides winners and losers. if not for deregulation you would be paying pre- 1975 commission rates. commissions that were a $1000 plus back in the days are less than 5 dollars today.
IB Quits options game!
- Thread starter SoesWasBetter
- Start date
My guess, they've focused too much on trading the b/a-spread, all automated... every market maker has trouble making a decent buck with tight spreads and low volume in options. So you need to evolve into MM/Hedgefund/HFT... all combined.
The notion that a market maker shouldn't hold larger books isn't true anymore, probably since 2006. I've seen plenty of them struggle, including us, when spreads and volume was low. And then, you should've moved into incorporating larger positions and increase the risk.
When I was trading in Europe, TH wasn't that much of a deal in the prof markets... don't know about the US.... but they were small in Europe. To be able to make decent money, you needed to be in the big numbers game... trade volume against banks and funds so you know what's happening... not just retail. 50k x 1 cent is earnings, 100 x 10 cents on retail doesn't cut it. I think they leaned too much on their systems as well, their traders were more programmers that couldn't make money on special occasions, because they lacked the experience.
The notion that a market maker shouldn't hold larger books isn't true anymore, probably since 2006. I've seen plenty of them struggle, including us, when spreads and volume was low. And then, you should've moved into incorporating larger positions and increase the risk.
When I was trading in Europe, TH wasn't that much of a deal in the prof markets... don't know about the US.... but they were small in Europe. To be able to make decent money, you needed to be in the big numbers game... trade volume against banks and funds so you know what's happening... not just retail. 50k x 1 cent is earnings, 100 x 10 cents on retail doesn't cut it. I think they leaned too much on their systems as well, their traders were more programmers that couldn't make money on special occasions, because they lacked the experience.
Robert Morse
Sponsor
These fees stem from exclusive arrangements with S&P and Russell Investments. Nasdaq owns 6 option exchanges: ISE, NASDAQ, BX, PHLX, ISE Gemini, ISE Mercury. Those exchange each earn an ORF fee every time you trade, regardless of what exchange you trade on. I agree that one exchange is too little but 14 and soon 15 is too many. NASDAQ providing 6 choices makes it very hard for a customer to understand all the maker/taker fees, where to send their order to be exposed to order flow and offer price and time priority, which I believe is important for fair markets and to provide an incentive for narrowing spreads. Get rid of the ORF fee and some of these will go away. I'd like to see the SEC stop allowing exchanges to merge without a benefit to the public.
Then how does the stock exchanges do it? There is only a few stock exchanges that stocks are traded on and the commissions is comparable to that of options and even cheaper. I find the biggest problem with options is what I call the "bureaucrats" fees like regulatory fees, FINRA fees, transaction fees, and the OCC fees. There are just too many and too much of it. If you look at the commission structure for options, half of the fees goes to those bureaucrats who really don't do anything. And the fees themselves is duplicate of each other. WHY are we paying regulatory fees AND FINRA fees? Isn't FINRA part of the regulatory bodies? So WHY are we paying double?
I mean if the regulatory bodies can just share some of their spoils with the MM's we could still have healthy competition and orderly market and cheap cost.
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Interesting story on Barrons from mid 2013... it was already a possibility....
http://www.barrons.com/articles/SB50001424052748704878904578537352974952458
http://www.barrons.com/articles/SB50001424052748704878904578537352974952458
Pockets mate... pockets... they need to be filled, the grease needs to be running... (or something)...
Robert Morse
Sponsor
On each option trade, there is a OCC fee, ORF, Sec 31 fee and TAF. The TAF, for FINRA, is very small. Same with the Sec 31 fee unless your option sales are very high in value. OCC is $0.05 and goes toward the OCC financial guarantee of your counterparty risk. The ORF fee is around $0.0431/option but going up soon with the 15th option exchange. As I've said, the ORF fee is the one that I find unnecessary. Let the exchanges make their money from transactions at their exchange.
Here you go, from their Q4 earnings:
"Market Making
Market Making segment income before income taxes decreased 66% to $44 million in 2016, compared to
2015, due to lower trading volumes and decreases in volatility and in the actual-to-implied volatility ratio.
Pretax profit margin decreased to 23% in 2016 from 44% in 2015."
44 mln is only 5% of their total earnings. Not sure whether that's included costs for shared builldings etc etc.... but it's peanuts compared to other market makers/HFT...
They're just not competing...
"Market Making
Market Making segment income before income taxes decreased 66% to $44 million in 2016, compared to
2015, due to lower trading volumes and decreases in volatility and in the actual-to-implied volatility ratio.
Pretax profit margin decreased to 23% in 2016 from 44% in 2015."
44 mln is only 5% of their total earnings. Not sure whether that's included costs for shared builldings etc etc.... but it's peanuts compared to other market makers/HFT...
They're just not competing...
BLAH BLAH BLAH BITCH BITCH BITCH.
While valid points, @JSOP provides nothing of value. Go lobby the SEC then.
Interesting discussion on fees/commissions and how the various MMs make their income. Anyone suggest any good textbooks with valid real world examples on the subject that covers the full gambit of exchanges and various players?