Interactive Brokers - Receives Payment for Order Flow or Not?

[volpunter]

I am not sure what angle InfoTech is playing here (nor do I care much) and I did not get the intention of his past 1-2 posts but I am sure this cynical post of yours does not add any credibility to your otherwise very transparent and forthcoming attitude.

Def, I am one of your longest standing retail and institutional clients of IB and you are still refusing to shed any light whatsoever into the exact workflows of IB's dark pool and its relationship to IB client orders. I still fail to see how your SMART order algos might not route "preferential" orders first to your own dark pool and in effect allow first-look in an indirect way before the order is either filled there or moved to another exchange. None of the documentation or information provided by IB to my knowledge assures the above might not be happening. I am not saying that is illegal but if that was indeed the case then this might pose very opposing motivations between customer intent (to have his/her order filled at the earliest possible time and at best price) and IB's motivation, especially Timber Hill's and the legal entity that operates the IB dark pool.

I also suppose IB's monthly metrics and Reg NMS Stock Trading Expense detail along with the audited price improvement stats anger competitors as well.

You stated you are not a client, and either work at a competitor or have some axe to grind. Show me another broker offering the level of transparency that IB does and we can continue the conversation. In the meantime, if you're looking for a compliance job, send me a PM. We're hiring globally. You could then see for yourself first hand how seriously we strive to achieve best execution for our clients.

 

[MrBrowser]

you are still refusing to shed any light whatsoever into the exact workflows

In light of current developments at ITG he undoubtedly needs to be very careful what he says in public fora. As to the other published interview -- he seems to be a youngish guy who's been at the firm only since 2010, so take his comments for what they're worth.

 

[volpunter]

this issue mentioned in your link is precisely my concern with IB's approach to US cash equity retail (and potentially institutional) trading. Again, I am not making any claims because I lack information but that is precisely why I asked IB and Def in particular and I am still not having any satisfactory answers. I do not trade US equities so it is not a pressing issue to me but the silence about explaining their retail order and dark pool relationship slightly worries me.

In light of current developments at ITG he undoubtedly needs to be very careful what he says in public fora. As to the other published interview -- he seems to be a youngish guy who's been at the firm only since 2010, so take his comments for what they're worth.

 

[InfoTech]

he seems to be a youngish guy who's been at the firm only since 2010

Since 2006, according to the article.

But I agree with you. I'd be willing to give the guy a pass for being uninformed on the topic. I see it as more of a supervisory failure for letting the statement stand, since that is the sort of contradictory information that led NeoTrader to start this thread in the first place.

 

[MrBrowser]

Since 2006, according to

Yes, my bad, should have written "in his current role" since 2010.

In any case, remarkable they let an "Institutional Sales Rep" speak for the firm, rather than someone much more senior. A bit of an own-goal.

Institutional Sales Rep
Interactive Brokers
March 2010 – Present (5 years 6 months)
Sell stocks, options, and commodities brokerage services (OMS and EMS) to hedge funds, advisors, and agency trade desks.

Professional Services - Supervisor
Interactive Brokers
December 2006 – March 2010 (3 years 4 months)
NASD Licenses: 7, 55, 63, 3, and 24

 

[def]

this issue mentioned in your link is precisely my concern with IB's approach to US cash equity retail (and potentially institutional) trading. Again, I am not making any claims because I lack information but that is precisely why I asked IB and Def in particular and I am still not having any satisfactory answers. I do not trade US equities so it is not a pressing issue to me but the silence about explaining their retail order and dark pool relationship slightly worries me.

Sorry about the silence but I have far more productive things to during the day (actually I'm really swamped these days and only getting around to responding to some of the comments now before hitting the sack). In any event, please look at the risk disclosures which are posted on our site. You'll see this in regards order routing and payment disclosure.

Line 1:
IB's Order Routing System: IB does not sell its order flow to another broker to handle and route.

and

B. Liquidity Provider Relationships in the IB ATS: IB has entered arrangements with certain institutions under which such institutions may send orders to the IB ATS at or near the NBBO. These orders are held within the IB system and are not displayed in the national market. If an IB customer order could be immediately executed against such an order held in the IB system (at the NBBO or at a better price than the NBBO), the orders may be crossed and the execution reported to the National Market System. This arrangement provides extra potential liquidity (size) for IB customer orders and leads to faster executions (since the orders do not have to be routed out to an exchange), as well as providing the possibility of price improvement (since the orders may be executed at a better price than available on an exchange).

IB may receive payment in the form of commissions or commission equivalents from the liquidity providers for these executions in the IB ATS. IB shares the benefit with IB customers in the same manner as described above (Fixed commission schedule customers receive a commission reduction to $.004 per share from $.005 per share and Tiered commission schedule customers receive roughly 50% of any average payments received from all dark pools/ATS’s and liquidity providers to customers whose orders are routed to the IB ATS).

and Further down:
6. Payment for Orders, Dark Pools, Liquidity Provider and Affiliate Relationships:
Interactive Brokers does not sell its order flow to another broker to handle and route. Through its SmartRouting system, IB evaluates each individual order and determines the best execution venue(s), from the perspective of the customer, where that order may be executed.

The emphasis is mine but to me speaks volumes. Please read the full risk disclosure as it may alleviate your worries. FYI, additional information on IBDARK is also on our site available for those interested to also review.

 

[volpunter]

again you evade my question. Nothing of what you quoted in the slightest deals with the relationship between IB retail orders and your own dark pool.

Sorry about the silence but I have far more productive things to during the day (actually I'm really swamped these days and only getting around to responding to some of the comments now before hitting the sack). In any event, please look at the risk disclosures which are posted on our site. You'll see this in regards order routing and payment disclosure.

Line 1:
IB's Order Routing System: IB does not sell its order flow to another broker to handle and route.

and

B. Liquidity Provider Relationships in the IB ATS: IB has entered arrangements with certain institutions under which such institutions may send orders to the IB ATS at or near the NBBO. These orders are held within the IB system and are not displayed in the national market. If an IB customer order could be immediately executed against such an order held in the IB system (at the NBBO or at a better price than the NBBO), the orders may be crossed and the execution reported to the National Market System. This arrangement provides extra potential liquidity (size) for IB customer orders and leads to faster executions (since the orders do not have to be routed out to an exchange), as well as providing the possibility of price improvement (since the orders may be executed at a better price than available on an exchange).

IB may receive payment in the form of commissions or commission equivalents from the liquidity providers for these executions in the IB ATS. IB shares the benefit with IB customers in the same manner as described above (Fixed commission schedule customers receive a commission reduction to $.004 per share from $.005 per share and Tiered commission schedule customers receive roughly 50% of any average payments received from all dark pools/ATS’s and liquidity providers to customers whose orders are routed to the IB ATS).

and Further down:
6. Payment for Orders, Dark Pools, Liquidity Provider and Affiliate Relationships:
Interactive Brokers does not sell its order flow to another broker to handle and route. Through its SmartRouting system, IB evaluates each individual order and determines the best execution venue(s), from the perspective of the customer, where that order may be executed.

The emphasis is mine but to me speaks volumes. Please read the full risk disclosure as it may alleviate your worries. FYI, additional information on IBDARK is also on our site available for those interested to also review.

 

[debitspread]

again you evade my question. Nothing of what you quoted in the slightest deals with the relationship between IB retail orders and your own dark pool.

I'm starting to think you're a little slow on the uptake, or at least slow to take a hint.

If he wanted to discuss at that level of granularity, he's had many chances to and has declined.

 

[OTM-Options]

IB will liquidate long options positions in order to attempt to raise cash to cover a deficiency that may have been created by margin use in any other product, including non-securities such as futures and forex.

Perhaps you meant that you would not get liquidated if your account only held long options positions and you held no other products for which margin is required. Obviously in that case you would never face an auto-liquidation, because there would never be a margin deficiency.

Even with long option positions you have to be alert.

Margin Call on an IB IRA account (Need Suggestions)

 

[volpunter]

That's why we should stop asking for clarification? I honestly do not care how busy or uninterested Def is in discussing this topic. He is under no obligation to say a thing like anyone else. But he could provide upside for his employer by clarifying things here or there, something he actually does every now and then and I want to believe for the precise reason to benefit his employer. His evading this very specific topic does not leave a whole lot of confidence that there are no conflicts of interest built into IB's client order handling process. But still confident enough to believe IB handles clients' business with more care than most others out there. Here is the forum and place and opportunity and perfect timing for IB to make crystal clear that client orders always receive best US cash equity execution and so far neither IB nor any of its representatives has taken the chance to demonstrate there are no conflict of interests with clients especially regarding their dark pool.

I'm starting to think you're a little slow on the uptake, or at least slow to take a hint.

If he wanted to discuss at that level of granularity, he's had many chances to and has declined.