Letter to IB regarding routing options

Inability to use IOC orders is definitely not an issue. In order to fix the bug of BEST_ECN not being able to access liquidity on REDI and ARCA beyond the NBBO they've had to start using IOC. What I just can't comprehend is why they didn't take the easy route of using IOC orders for their BEST and BEST_ECN routing in the first place instead of globally crippling functionality by installing new interface software on the ECN links.

And it gets even worse. On Friday, I tried hitting a Nasdaq Intermarket (Third Market) bid on EMC after hours and instead of an execution received a cancellation. So it looks like they've ruined ARCA not just for Nasdaq trading but for listed trading as well. ARCA is so far the only ECN that integrates with CQS and ITS via Nasdaq Intermarket for listed trading and thus enables interaction with quotes of all regional exchanges via ITS, Nasdaq Intermarket dealers via CAES, as well as all other ECNs (ISLD, REDI INCA) and can itself be accessed through ITS. I wonder what IB's reasoning is for denying their customers access to these additional pools of liquidity.
Fortunately, unlike Nasdaq with listed trading this is not as big an issue (except for ETFs) since most of the time trading is driven by the primary market (NYSE or AMEX). On the other hand, a considerable number of high volume NYSE stocks exhibit a very high level of non-NYSE executions. E.g. this past week 67% of the volume in AOL, 62% of TXN, 55% of MU, 42% of GE, and 41% of the volume in EMC was non-NYSE.

As for getting def on the case, he has already been most helpful in voicing our concerns with the appropriate people within IB, but so far to no avail. I've provided him with extensive information many weeks ago to enable him to make a case, but I suspect that his influence in this matter may be limited since he is based in Hong Kong and not directly involved in IB's US equity trading operations.

Dave
 
Originally posted by dlincke
Not even David Fried's (def) much appreciated efforts in this matter had any effect.
More...

So that's def's real name...

Kinda like when I found out Kramer's first name was Cosmo... :)
 
It's stunning that the active routing of ARCA/REDI
was taken away, but perhaps even more unbelievable
is that we can't hit liquidity away from the NBBO on
these ECNs. It begs the question why the route is
even there. As I understand it, if you have a
hypothetical stock CRAP, whose bids look like this:

GSCO 100 16.25
REDI 200 16.24
ARCA 1000 16.23

I have 1000 shares to sell. So I enter a sell for
1000 shares at 16.23 on ARCA. I have expressly
chosen ARCA as my route and designated my limit
price, but my order is automatically cancelled because
ARCA isn't the NBBO.

I think the person(s) responsible for this should
be forced to eat at Arby's for at least a year.

-v
 
guys,
i'll look into this. not sure why but there is a reason. (maybe fees, maybe the loss of control of an order. I do not know but give me a few days.)

wareagle - not quite but close. If you look around the IB web site you'll find out the true details :)
 
In my eyes the ideal solution to this whole mess would be to split the current crippled REDI and ARCA routes into two separate routes each, with the following behavior:

1. REDI_IOC / ARCA_IOC: This should send an IOC order to the respective ECN at whatever price the user chooses thus replicating current behavior but without the restriction of not being able to execute outside the NBBO.

2. REDI_ACTIVE / ARCA_ACTIVE: These routes would restore the active routing functionality that used to be the default behavior of those two ECNs until two months ago.

I believe such a solution could make everybody happy including IB.

If the concern that led to those restrictions is loss of control of an order, potential problems would be isolated to the REDI_ACTIVE/ARCA_ACTIVE routes and IB could add a disclaimer. However, with the transition from SelectNet to SuperSOES this should be a moot issue anway except for Nasdaq SC stocks.

If the problem is additional fees then please by all means pass them on to us. Not being able to access liquidity that is readily available tends to be a lot more costly then a slight increase in commissions.

Dave
 
Dave's solution sounds great. Of course, I think
it would be even nicer if the routes ARCA and REDI
defaulted to their old active routing behavior
and we got an IOC checkbox for these ECNs on
the order ticket page (granted this would be
slower for entering orders than Dave's way once
you had it set up). If we could get a FOK (fill-or-kill)
button for ISLD and SUB (subscriber-only) button for
ISLD/INCA that would be great, but I guess that's why
MB and Cyber get those high commissions.

P.S. Does anyone know why ARCA quotes for QQQ still
aren't showing up?

-v
 
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