IB SMART routing and BATS rebates

[IB Salvatore]

I wanted to confirm IB customers (API and TWS) can customize their SMART routing to rest their unmarketable orders on the exchange with the highest rebate.

Available strategies include:

Smart - Routes your non-marketable order to the default exchange for the contract.
Highest Rebate - Routes your non-marketable order to the exchange offering the highest rebate for added liquidity.
Primary exchange - Routes your non-marketable order to the listing exchange for the contract.
Highest volume exchange with rebate - Routes your non-marketable order to the exchange with the most volume that also offers the highest rebate for added liquidity.
Highest volume exchange with lowest (taker) fee - Routes your non-marketable order to the exchange with the most volume that also charges the lowest fee for taking liquidity.

 

[JSOP]

To softdown, IB's statement on this is debatable.

For a quick review check out:

http://bannronn.com/market-basics/us-brokers/trade-execution-order-routing-options.html

Where the author writes:

"Internalization Using SMART Routing Technology

The third option is internalization in which the broker can send the order to a different division within the firm to fill the order. An excellent example of this is the relationship between Interactive Brokers (IB) and Timber Hill (TMBR). TMBR makes markets in a variety of trading instruments while IB is a deep discount brokerage in stocks, futures, options etc. Using IB's SMART routing technology, orders are routinely routed to TMBR to see if it can be executed there before proceeding elsewhere."

And YES they do. IB DOES internalize their order flows. And they disclose it clearly in this document:

https://gdcdyn.interactivebrokers.c...rmSampleView?ad=order_routing_disclosure.html

And in it, IB especially talked about how IB sends orders to its subsidiary Timber Hill BEFORE it sends them to exchanges and Timber Hill is a significant market maker on especially option exchanges just like what Options12 said here.

But according to all the regulatory bodies, it's ok. Their rule is as long as you disclose it, everything is ok.

 

[d08]

Are the SMART strategy (primary exchange, highest rebate etc.) orders commissions the same as plain SMART or are they considered to be directed?
The problem is that IB seems to prefer BATS but there's hardly any volume on it in most names when using MIDPRICE, so I'm left with dead orders, rendering it useless.