IB: why I was charged for removing liquidity (RE: options)???

This being an options trade, i can't say for sure. But if it was a trade involving stocks, this is what happened.

you put in a limit order. your setting is probably set as 'proactive'. someone puts in a bid/offer at your price. his/her proactive is off. so your order routes to his.

again, i don't know if samething applies to options. i hope you get this figured out, and let us know what happened.
 
If so, that would be an amazing way to reduce costs when selling at bid or buying at ask: i.e. make a direct routed order to sell at the bid using an exchange that NOBODY is bidding for, and that would force them to reroute (i.e. assuming there is a counterparty using smart route on the bid) and pay exchange fees that get passed on to the customer. That would be hard for me to believe it happens on stocks, and even more so on options.
 
Here is what IB is saying meanwhile:

"If a GTC order becomes marketable once submitted to an exchange after 7:20:EST it may be subject to liquidity removal fees." They are saying however..."Our system then... resubmit them to the exchanges at 7:20:00 EST..." So it seems what may have happened here is they delayed in resbumitting this particular order.
 
Quote from Option Trader:

Here is what IB is saying meanwhile:

"If a GTC order becomes marketable once submitted to an exchange after 7:20:EST it may be subject to liquidity removal fees." They are saying however..."Our system then... resubmit them to the exchanges at 7:20:00 EST..." So it seems what may have happened here is they delayed in resbumitting this particular order.
More...


This (sort of) makes sense to me, in the following (possibly incorrect) interpretation: a GTC order is not generally offered by modern ECN's (as the book starts clean every day), so the broker "simulates" it by resubmitting a day order every day, which may then cross an existing order (as there's no way for them to guarantee that your order is first) and thereby remove liquidity.
 
Quote from forsalenyc:

This being an options trade, i can't say for sure. But if it was a trade involving stocks, this is what happened.

you put in a limit order. your setting is probably set as 'proactive'. someone puts in a bid/offer at your price. his/her proactive is off. so your order routes to his.

again, i don't know if samething applies to options. i hope you get this figured out, and let us know what happened.
More...
I now see the merit in this interpretation as well. It has happened already 2-3 to me since my original post that I left in an option order between the bid and the ask, the order is sitting on CBOE, someone sells to me at the bid, and it gets filled on PSE and I pay a load of exchange fees!
 
Here are excerpts of the last message I sent to IB:

....IB must protect their customers interested in buying between the bid and the ask price (using IB's smart route) from having direct access traders sell to them at the bid using PSE and earning handsome exchange fees for themselves on the trade (as it seems the smart route reroutes as opposed to CBOE rerouting). This has happened to me again since this last message, and these days accounts for a very large percentage of the trades with IB... I hope this was a programming glitch thank can be resolved.
 
That's interesting... Have you tried routing the orders directly to the exchange in question? If you specify the way you want an order to be routed, you don't loose unbundled commissions, do you?

One thing that confuses me about your situation is I believe options (unlike equities) cannot be internally matched by a broker.

Equity stocks are like commodity. In order to deliver a stock you have to own one. So, whioever you buy the equity from doesn't matter as long as the trade clears. Option is a contract with 2 parties. If you buy an option from one party, you cannot sell it to another party; instead you sell a matching option to another party and stay inbetween. With exchange-traded options exchange is the party that stays between a buyer and seller so that all option contracts are against the exchange. If you sell an option to Timber Hill that matches orders for IB the echange won't take the option from Timber Hill's hands unless pid for it. The latter would remove financial incentive to match orders internally.
 
IB is not internally matching the trades, rather, if mine is sitting on CBOE using smart route, and someone sell to me at the bid on PSE, it seems their smart route is removing my bid from CBOE, and resubmitting on PSE.

I have another very low price arrangement with another broker that when I use their smart route, I don't pay exchange fees, and if they are, they would be losing money on the trades.

So it surprises me how IB, such a sophisticated company, ends up getting the raw end of the deal for themselves (so it seems)--hence their customers.
 
Just bought at ask using PSE with IB in a situation where the counterparty was not on PSE to see what would happen the other way. My order went through on PSE. How? Did the counterparty not have smart route? If yes, why didn't IB earn exchange fees on my behalf?
 
You must log in or register to reply here.
Back
Top