new option cancel fees for IB

ktm · Mar 31, 2003

Quote from vhehn:

All US exchanges now charge option order cancellation fees. In order to recapture this expense, effective April 14, 2003, IB will charge $1.20/cancelled option order for smart and direct routed option orders. Option order cancellation fees will be REDUCED at the following rates:

Direct Orders $.20/executed contract capped at $1.20/executed trade
Smart Orders $.25/executed contract capped at $3.75/executed trade

I think you should read this AGAIN. The $1.20 is IN ADDITION to the $1 you are already paying to execute. If you cancel an order for a single contract, you pay $1.20 and you haven't bought/sold anything. If you modify that order once and then it executes, you pay $2.20 minus .25, or $1.95.

I think you have it backwards, the guys moving 6 or more contracts are better off because the fee presumably is per order, not per contract, whereas the refund is per contract.

ktm · Mar 31, 2003

I agree completely.

I would like to know the true motivations behind this action. Maybe the BOX will be able to work around this, especially with the IB relationship. I gather the brass at IB don't like this any more than we do. It seems like since the profitability of the traditional methods has deteriorated, that more emphasis has been placed on squeezing the little guy and self-preservation. They are going to need to balance that as I think more retailers are thinking about taking their ball and going home.

Trader.NET · Mar 31, 2003

Quote from def:

on the fees...

my early indications are that they do apply to modifications (as the exchanges may treat the orders as cancel/replace as opposed to modify).

if you use SMART and it moves you from one exchange to another, there are no fees

I'm not sure how up to speed I'm going to be able to stay on this matter as I'll be a focused on trading and other matters this week. The best place to start a discussion on the fees would be under the trading thread on the IB web site. I'll make sure that one or two people at the management level who understand the issue will be aware of potential posts.

From IB Forum discussions and IB's email, it seems that SMART will be charging even more Cancellation Fee!

All US exchanges now charge option order cancellation
fees. In order to recapture this expense, IB will charge
$1.20/cancelled option order for smart and direct routed
option orders. Option order cancellation fees will be
REDUCED at the following rates:

Direct Orders $.20/executed contract capped at $1.20/executed trade
Smart Orders $.25/executed contract capped at $3.75/executed trade

iceman1 · Mar 31, 2003

Quote from AAAintheBeltway:

As for the fee itself, it is clear that the options exchanges are desperately trying to hang onto the privileges of exchange membership. Chief among these has been the ability to screw retail customers. Their view is if you want to try to buy at the bid, you should get a membership. Otherwise bend over and grab your ankles like everyone has always done. I can see why the dying floor-based exchanges would go for this, but it is a mystery to me why ISE would.

No doubt the MM's have arguments along the line that they provide liquidity, and it's not fair for a creamskimmer to come in and improve the bid/offer and force them to constantly be adjusting. I suppose this problem will work itself out as new entities like BOX come on line and try different models. Or traders can just go where they are treated better.

ABSOLUTELY true what you state...

I talked with the CBOE today trying to determine why these fees were allowed in the first place back in 2001. And it's obvious that somehow these guys think they are doing off-floor traders a favor letting them trade options in the markets they make... when in fact the absolute truth is they are upset that they can't screw as many people as easily as before, and might have to actually work hard to make as good a living in these more difficult times! Or WHAT? What's their threat... to quit and close down all the options exchanges? Sure... what b.s!

Normally stuff like this doesn't bother me... but frankly I'm sick and tired of the wall street power structure getting away with white collar murder.... and then having to witness the poor and downtrodden being placed in jail for stealing a loaf of bread so to speak! And I'm not being overly dramatic here... the markets should rightly be accessible to all whom are willing to take the risks associated with trading, and no one party or group should be favored.

I think the MMs have a right to make a living.... I am acquainted with quite a few former floor guys here in Chi. But do so on their own by taking their own risks... and trading better... NOT by asking guys like me to supplement them only during bear markets! But ain't that the American bullcrap that is fed to all of us here... how America is a land of equal opportunity?! And what is more a central part of our US culture in the past 20 years than the stock market?! But I guess there will always be some on wall street who will always believe they are "more equal" than all other participants in these markets! When in fact they are just more corrupt and greedy than most decent Americans. Apparently they can't trade very well with an even playing field.... on wall street! Gotta cheat! It's never enough with these guys; never enough money.

How many in the country and abroad... are suffering from the bear market?! And yet, wall street alone thinks they have some inalienable right to a guaranteed income and retirement. What integrity these guys got.

Options trading is important and a necessary part of the markets. There should not be special rules for options and not for equities. Further the spread should be narrowed if these guys are going to assess fees to member firms that they gotta know will be passed on eventually. We got decimal pricing in equities for better or worse, so now let's narrow the bid/ask on options also! THEN let them charge all the cancel fees they want imho.

Doubt they'll do that, though! :eek:

So let's elicit some interest from securities attorneys to look into a class action against CBOE etc. Obviously they will only do so IF they foresee that they can be paid. Stay tuned.

Ice

white17 · Mar 31, 2003

Quote from Trader.NET:

From IB Forum discussions and IB's email, it seems that SMART will be charging even more Cancellation Fee!

All US exchanges now charge option order cancellation
fees. In order to recapture this expense, IB will charge
$1.20/cancelled option order for smart and direct routed
option orders. Option order cancellation fees will be
REDUCED at the following rates:

Direct Orders $.20/executed contract capped at $1.20/executed trade
Smart Orders $.25/executed contract capped at $3.75/executed trade

I think you're misunderstanding the memo, or I am. The $.25/executed CONTRACT capped at $3.75 is the amount applied to reduction, not the cancellation fee itself. At least that's how I read it.

Trader.NET · Mar 31, 2003

Quote from white17:

I think you're misunderstanding the memo, or I am. The $.25/executed CONTRACT capped at $3.75 is the amount applied to reduction, not the cancellation fee itself. At least that's how I read it.

You're right.

Catoosa · Apr 1, 2003

Individual traders provide liquidity as do market makers; So, the only reason for the cancellation fee is to put individual traders at a disadvantage. If individual traders could provide enough liquidity, there would be no need for market makers. The fees make it more expensive for all buyers and sellers. The fees had to be approved by regulators; So, we know whose interest the regulators are looking out for. We should complain and try to put pressure on our congressmen. Just some of my thoughts.

Catoosa

Madgenius · Apr 1, 2003

First, I am an option market-maker at an exchange.
I don't get paid any money from cancellation fees.
Exchanges collect the fees and they aren't making much money.

My understanding is the fees were imposed because of
the actions of relatively few customers.

These customers have used computer order entry systems
to enter and cancel hundreds of orders per minute, in many
products, all day long.

Should they be allowed to do this?
I could argue either side.

The bottom line was that these orders were using massive
amount of systems resources with few executions.
They were slowing down the system and preventing the
exchange from operating properly.

Unfortunately, this hurts all customers.
That hurts my business too,
but if it were my decision I'd probably decide the same.

What would ET members propose as an alternative?

qdz3 · Apr 1, 2003

If the purpose is only to eliminate computer generated orders (which is illegal by the options agreements), then there should be a reasonable threshold of numbers of cancellation for starting to charge the fees so that manual modifcation/cancellation should be allowed.

It is not a conspiracy theory. It is evidence of crime IMO>. Finger!

Quote from Madgenius:

First, I am an option market-maker at an exchange.
I don't get paid any money from cancellation fees.
Exchanges collect the fees and they aren't making much money.

My understanding is the fees were imposed because of
the actions of relatively few customers.

These customers have used computer order entry systems
to enter and cancel hundreds of orders per minute, in many
products, all day long.

Should they be allowed to do this?
I could argue either side.

The bottom line was that these orders were using massive
amount of systems resources with few executions.
They were slowing down the system and preventing the
exchange from operating properly.

Unfortunately, this hurts all customers.
That hurts my business too,
but if it were my decision I'd probably decide the same.

What would ET members propose as an alternative?

corvus · Apr 1, 2003

Quote from Madgenius:

My understanding is the fees were imposed because of
the actions of relatively few customers.

These customers have used computer order entry systems
to enter and cancel hundreds of orders per minute, in many
products, all day long.

This is supposedly why EUREX added cancellation fees as well. I might believe it for EUREX in a liquid futures market, but I am not so sure about options markets.

And anyway, if it is "aimed at the few" why is the majority punished? Like I said earlier, why do I pay a red cent when I do one trade a day and end up cancelling my trade for that day? How about simply charging a fee for cancellations above a certain threshold, rather than this stupid charge/credit method?

And in addition, what the hell sort of bassackwards logic is it for the exchange to throw up barriers to trading? Don't they WANT people there? This sort of behaivior causes alot of people to question whether trading on that exchange is cost-effective for them. As a market-maker, shouldn't you be pissed off too that the exchange is trying to drive away YOUR customers?