IB TWS APIs - Great until IB crippled them
- Thread starter dlincke
- Start date
mskl has already made the case concerning deficiencies of BEST routing with options. Let me give you some examples with stocks.
Listed stocks
BEST can have disastrous results when the specialist opens up the spread to make a negotiated market and execute around the midpoint of the spread and there's ECNs at or near the bid/ask. Let's assume the specialist in ABC opens the spread to 63.10 x 63.70 but executes everything at 63.30. In addition ISLD or some other ECN is offering out at 63.69. You put in a limit order to buy 1000 shares at 63.70 on the BEST route and are executed at 63.69 instead of 63.30 which you would have received had you used the NYSE route. So courtesy of IB's "best execution policy" your execution just cost you $397.50 instead of $7.50.
By the way, besides the rerouting delay it could cause this problem was the main reason that IB removed PRIMEX from their BEST routing because people kept getting screwed using BEST
Nasdaq stocks
Generally, since the introduction of SuperSOES BEST has been working very well for Nasdaq stocks. However, there is some shortcomings/bugs that can cause orders to be delayed or even hang indefinitely.
Have you ever tried using BEST when IB's quotes are incorrect or frozen? Depending on where the real market is in relation to IB's quotes this is a true recipe for disaster. If you're lucky you won't be able to get an execution at all or receive a very delayed execution. If you're not so lucky wou will be executed way out of market.
Here's step by step instructions to reproduced the latest bug in IB's Nasdaq BEST routing which I believe was introduced as part of the new feature that internalizes splitting of sell orders to comply with short sale restrictions:
- Buy 1000 shares of some Nasdaq stock.
- Put in a non-marketable limit sell order for those 1000 shares
- Change the order size to 1500 (or some other amount greater than the current position) and retransmit
- Change the order size back to 1000 shares and retransmit again
- The order will turn blue and hang indefinitely until cancelled
Unfortunately, BEST order handling bugs of this kind have been released into production on a frequent basis lately. It just took IB a full week to eradicate a nasty bug from their system where BEST arbitrarily changed order sizes on order modification and under certain circumstances caused those orders to hang indefinitely.
Listed stocks
BEST can have disastrous results when the specialist opens up the spread to make a negotiated market and execute around the midpoint of the spread and there's ECNs at or near the bid/ask. Let's assume the specialist in ABC opens the spread to 63.10 x 63.70 but executes everything at 63.30. In addition ISLD or some other ECN is offering out at 63.69. You put in a limit order to buy 1000 shares at 63.70 on the BEST route and are executed at 63.69 instead of 63.30 which you would have received had you used the NYSE route. So courtesy of IB's "best execution policy" your execution just cost you $397.50 instead of $7.50.
By the way, besides the rerouting delay it could cause this problem was the main reason that IB removed PRIMEX from their BEST routing because people kept getting screwed using BEST
Nasdaq stocks
Generally, since the introduction of SuperSOES BEST has been working very well for Nasdaq stocks. However, there is some shortcomings/bugs that can cause orders to be delayed or even hang indefinitely.
Have you ever tried using BEST when IB's quotes are incorrect or frozen? Depending on where the real market is in relation to IB's quotes this is a true recipe for disaster. If you're lucky you won't be able to get an execution at all or receive a very delayed execution. If you're not so lucky wou will be executed way out of market.
Here's step by step instructions to reproduced the latest bug in IB's Nasdaq BEST routing which I believe was introduced as part of the new feature that internalizes splitting of sell orders to comply with short sale restrictions:
- Buy 1000 shares of some Nasdaq stock.
- Put in a non-marketable limit sell order for those 1000 shares
- Change the order size to 1500 (or some other amount greater than the current position) and retransmit
- Change the order size back to 1000 shares and retransmit again
- The order will turn blue and hang indefinitely until cancelled
Unfortunately, BEST order handling bugs of this kind have been released into production on a frequent basis lately. It just took IB a full week to eradicate a nasty bug from their system where BEST arbitrarily changed order sizes on order modification and under certain circumstances caused those orders to hang indefinitely.
Hi out there,
I was wondering why no one mentioned one important fact on this subject. There is a significant difference in business for IB between equity and options orders. I think it explains partially why options orders are default-routed to ISE and are hard to trade with IB.
While IB does not get any payment for order flow for equity orders, they DO get payed for option order flows. As pfo is an important part in the business plan of many brokers, this part is probably important to IB as well.
As I am a generally very happy customer of IB and am amazed every now and then about the functionality they offer for their discount commissions, I can understand why IB acts this way. I think it may need to be that way for IB to be able to survive.. and I sure want them to! (Although there are days when I hate them, but that's a different story
)
Cheers
WonkoTheSane
I was wondering why no one mentioned one important fact on this subject. There is a significant difference in business for IB between equity and options orders. I think it explains partially why options orders are default-routed to ISE and are hard to trade with IB.
While IB does not get any payment for order flow for equity orders, they DO get payed for option order flows. As pfo is an important part in the business plan of many brokers, this part is probably important to IB as well.
As I am a generally very happy customer of IB and am amazed every now and then about the functionality they offer for their discount commissions, I can understand why IB acts this way. I think it may need to be that way for IB to be able to survive.. and I sure want them to! (Although there are days when I hate them, but that's a different story
)Cheers
WonkoTheSane
I wish I could share your faith in IB's management. But unfortunately I don't have quite as short a memory as you seem to have. Just last spring IB decided to reduce the liquidity pools that their customers should have access to. And ever since it's no longer possible to trade with any of the regional exchanges (PHLX, CHGO, CINC, PACX, BOST, Nasdaq Intermarket), any Nasdaq MMs pre-market and after hours, or any not directly connected ECNs (MKXT, LSPD, ATTN, NTRD) outside of market hours. At the time, I among others put a lot of effort into trying to convince IB management to reconsider those restrictions but despite def's efforts in relaying our concerns to no avail. Thhey never even bothered to give a reasonable explanation as to why those steps were taken in the first place.
What I have a very hard time understanding here is how a company that prides itself in its mission statement of striving to meet the highest best execution standards keeps on adopting new restrictions that practically guarantee that their customers receive inferior executions.
If all this is due to ECN/exchange fees as some other poster alluded to then by all means raise those commission rates because in the end inferior executions are costing us so much more.
Dave
The requirement to manually confirm API generated options orders are obviously due to exchange rules and we can't blame IB for taking the necessary steps to comply. The restrictions put on the free choice of order route are a totally different story, though.
Dave
P.S.
The confirmation window can be rather easily programmed around if necessary
Dave
P.S.
The confirmation window can be rather easily programmed around if necessary
I don't subscribe to any of the conspiracy theories brought up by some on this thread as an explanation, and I don't think that the peculiarities of IB's BEST routing for options have anything to do with payment for order flow either.
Not sending orders to exchanges that have autoex switched off is a reasonable decision given the potential delays associated with cancellation attempts. And defaulting non-marketable orders to ISE is reasonable as well as it guarantees that the order will be displayed immediately. With manual order entry all the potential problems mskl has pointed out can easily be worked around as it is possible to explicitly route to whichever exchange you choose. The problem here is that IB is trying to force BEST upon their customers when using any of the APIs.
ISE is the chosen as the BEST because it is much easier to cancel these orders. Sometimes if you place an order with the AMEX, CBOE, or Philly and the specialist/market maker hasn't "seen" the order, it could be a nightmare trying to cancel your option order (i.e., it has taken minutes in a fast moving stock in the past). Thus, by using the ISE, you can immediately cancel your order (unless the system is down) which is to our advantage.
Hey alanm,
What restrictions are there on auto-quoting ETFs? What does "auto-quoting" encompass? Any links to these restrictions?
Thanks,
Carl
The AMEX restricted them.
Then again from a trader's standpoint, you wouldn't want to go to the AMEX because:
(1) takes forever to get an execution
(2) takes forever to get a cancel
(3) they charge you for a cancel
(4) usually no price improvement at the AMEX
Thus, you are better off on the NYSE or ISLAND.
Then again from a trader's standpoint, you wouldn't want to go to the AMEX because:
(1) takes forever to get an execution
(2) takes forever to get a cancel
(3) they charge you for a cancel
(4) usually no price improvement at the AMEX
Thus, you are better off on the NYSE or ISLAND.