OptEX - Option and Equity traders...

Originally posted by Don Bright
The "crossing" of orders on the floor is commonplace, and has been for years, and I am not sure if that is how I read this new Optex routing. We have known for years about "back room crossing" with stocks via major firms (they sometimes use the regional exchanges to add "propriety" to the trades), but I am reading this that the orders can simply be internalized, without any exchange floor display....not sure yet, and welcome all comments..

don
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I spoke with someone at Goldman today who told me the orders would have to be executed on the Exchanges. I doubt he is wrong.

Currently most orders, from dumb customers get looked at by someone and now Schwab's is simply going to Goldman and that is why it is meaningless. If it wasn't Goldman then it would be someone else.

And five seconds is enough time for me!!!

If I actually had five seconds to execute 100% of all customer orders then it would be a HUGE improvement over today's marketplace.
 
Originally posted by Don Bright


Since Hull trading is involved, a major player on the ISE, as well as a major player in most trading pits worldwide, I don't think hedging is a problem.

I've know Blair Hull since the 1970's and he (and his firm) are the best in the world at what they do. IMHO...

Don
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Don,

Just another example of Hull/Goldman following in Timber Hill's/IB's footsteps :)

This is nothing more than their example of BestEx with orders being preferenced to Goldman as opposed to another broker. Most likely they are paying Schwab for the order flow which is a coup to them as that flow is not what you would call smart flow.

As for your opinion on who is best.... captial speaks for itself. In addition, you keep mentioning Blair Hull. He sold out and no longer works for them.

As for being part of the Goldman family - maybe I'm missing something but aren't you just an active client. Why do you think you woud receive preferential fills or access over anyone else who routes based upon best price.

(just my humble opinion).

def
 
Originally posted by Don Bright
Are any of you guys trading options via a broker? I'm just curious if they (the brokers) have made this information available to you. (It makes sense that they wouldn't, for obvious reasons, but I would hope that the better broker would come up to the plate and give some disclosure to their customers)...Let me know if you have a minute..

Don
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Just came across this one as well and I now have a minute.

Don, you need to do your research on options trading. Your comment makes no sense.

IB has been advocating exchange linkage and best execution of options for quite some time (well documented in comment letters to the regulators). Its option routing has been fully disclosed for quite some time. It is quite simple - route to the exchange with the best price and prioritze markets/firms which are automated. IB is not alone in this regard.

Now, what sense or reason would a broker tell its customers that a competitor has just declared they will also now try to find the best price for an options trade? Unfortunately this should be the norm and should not be big news. It just shows the sad state options trading in the states is in. Based on your comments, it sounds like you would expect Goldman/Redi go around telling its clients that another brokers is giving better fills - I think not. Hey, with your logic Goldman should announce to their clients that they can get the same or better fills elsewhere for only $1 a contract.

We all know Goldman is a good firm and they definately are better off with the aquisition of Hull/SLK. However, until they purchase Bright, I don't see how you are anything but a client. The relationship they have with you - no matter how long it goes back- will only continue as long it is profitable to them. You message implies that they are somehow more ethical than other firms. I'm not questioning their ethics. However, if they were riding a higher horse than everyone else, this announcement would have come 3-4 years ago. I'd argue that this news/project was driven by the competition.
 
Def, my friend...I think I know from where I am speaking about this topic: Some of my concerns are now known:

y Kopin Tan
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--It comes down to how strong the Chinese walls are at Goldman Sachs Group.

The groundbreaking order-routing deal between Goldman and Charles Schwab Corp. continues to be hotly debated days after it was unveiled: Under the pact, Schwab will send its customers' option orders to a new Goldman unit, OptEx, which in turn scans the various and currently unlinked option exchanges for the best market to route these orders to.

The catch? Goldman happens to own SLK-Hull Derivatives, the largest option floor specialist. Through ambitious acquisitions over past few years, SLK-Hull's network has grown so extensive it has specialists in more than 70% of the options Schwab customers currently trade, by several estimates. A good chunk of Schwab orders could conceivably be steered to SLK-Hull - provided, of course, their specialists fulfill the not-difficult task of matching the best price in the market.

"We wholeheartedly endorse any arrangement that ultimately gets an order to a trading floor - provided it reaches the floor without anyone seeing it first," said James Hyde, a market maker with Tahoe Trading who is also chairman of the American Stock Exchange's option market-maker association. Rival specialists and traders are concerned OptEx will act as a new arm feeding a stream of orders to the mouth that is SLK-Hull (previously Spear Leeds & Kellogg before a recent name change).


(MORE) DOW JONES NEWS 04-25-02
 
From def quote:>We all know Goldman is a good firm and they definately are better off with the aquisition of Hull/SLK. However, until they purchase Bright, I don't see how you are anything but a client. The relationship they have with you - no matter how long it goes back- will only continue as long it is profitable to them. You message implies that they are somehow more ethical than other firms. I'm not questioning their ethics. However, if they were riding a higher horse than everyone else, this announcement would have come 3-4 years ago. I'd argue that this news/project was driven by the competition. /quote

I'm not sure what you're implying here, ethics by my firm have never been questioned, nor tied to GS in any way. If we were not comfortable with GS/SLK/Hull or anyone else, we would simply go elsewhere. We are in a great position, especially when compared to the rest of the firms out there. That has nothing to do with OptEx, or GS. If you noticed above, the GS article is more negative than positive. I am just expressing concerns as a trader.

I haven't made comments about the recent events at IB or anything, since I think Timber Hill is a quality group. I'm really not sure what point you're trying to make here.

Please take a second, and do me the courtesy of sending a PM ...I would really appreciate it.
 
Originally posted by Don Bright
Def, my friend...I think I know from where I am speaking about this topic: Some of my concerns are now known:

y Kopin Tan
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--It comes down to how strong the Chinese walls are at Goldman Sachs Group.

The groundbreaking order-routing deal between Goldman and Charles Schwab Corp. continues to be hotly debated days after it was unveiled: Under the pact, Schwab will send its customers' option orders to a new Goldman unit, OptEx, which in turn scans the various and currently unlinked option exchanges for the best market to route these orders to.

The catch? Goldman happens to own SLK-Hull Derivatives, the largest option floor specialist. Through ambitious acquisitions over past few years, SLK-Hull's network has grown so extensive it has specialists in more than 70% of the options Schwab customers currently trade, by several estimates. A good chunk of Schwab orders could conceivably be steered to SLK-Hull - provided, of course, their specialists fulfill the not-difficult task of matching the best price in the market.

"We wholeheartedly endorse any arrangement that ultimately gets an order to a trading floor - provided it reaches the floor without anyone seeing it first," said James Hyde, a market maker with Tahoe Trading who is also chairman of the American Stock Exchange's option market-maker association. Rival specialists and traders are concerned OptEx will act as a new arm feeding a stream of orders to the mouth that is SLK-Hull (previously Spear Leeds & Kellogg before a recent name change).


(MORE) DOW JONES NEWS 04-25-02
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what is your point??
what concerns??? (concerns that don't already exist)



The orders still have to go the Exchanges and once there SLK-Hull must abide by each Exchange's facilitation rules!!


You will never be able to eliminate principal traders from taking a peak at the order, but in order to cross these orders then all participants will first have a shot at them.

You implied that this was an OTC market - you said orders would not go to the floor......................
 
Simply this....the concern arises when there is a "quasi-monopoly' by anyone, anywhere. So what if the orders go to a trading floor (been on one for years), if there are 70% one firm, with all the orders, all the money, and all the routing...it could be a problem.

I'm not saying it is a problem, just that the potential is there. Order goes to brother A, who sends it to brother B, who works with brother C on the trading floor. Brother C is a broker, who trades with brother D who is a MM for the same firm Brother A works for. Everybody makes a nickel on this trade, either from commissions or slippage. Not a big deal.

And I am not making a big deal out of this, I am simply pointing out a potential concern. One of my "floor trader pals' is actually really "pissed off" about the whole thing, and is threatening to sell his seat and all that.

I just like to know as much as I can about how the game I love dearly is being played, who the players are, and how my edge is being modified or eliminated (in some cases).

Not really a debating point, just a bit of information that I think is valuable to those who may trade options. I know that there is no real edge anymore trading options off floor (and very little "on floor")...my intention by posting was simply informative.
 
Originally posted by Don Bright
my intention by posting was simply informative.
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fair enough.


I personally believe that it will only help traders such as myself. All indications are that this order routing would be done in such a way to avoid the unfriendly Exchanges which hold orders, move quotes etc - similar to the way IB routes orders. As a result it means less orders for the AMEX, PHLX and CBOE, which is actually better for everyone and will ultimately put pressure on these Exchanges to actually start honoring their quotes.
 
Don,
Didn't mean to imply or question your ethics in any way. I must have misinterpretted your post but you did day something about brokers should be more forthright. I thought you also implied that because you clear through Goldman had some kind of edge. Accept my apologies if I mis-interpretted.

The fact remains that this really isn't ground breaking news. It is just Goldman making a deal with another firm to get its order flow and announcing that they will now route to the best market. That is perfectly legal and will most likely get Schwab's clients better fills than before.

The options world hasn't been the most straight forward place to do business in the states. With moves other firms joining in to provide immediate executions at the best price, hopefully it will continue to improve.

here's another move in the right direction for the options world:

PHLX Launches Broker-Dealer Access to Its Electronic Trading
2002-04-23 12:41 (New York)

System

PHILADELPHIA, April 23 /PRNewswire/ -- Effective today, the Philadelphia Stock Exchange will accept and execute electronically routed orders from off-floor broker-dealers.
All of the PHLX's 1,200 options classes will accept electronic delivery of broker-dealer orders. During the first phase of this six-month pilot program, automatic execution of broker-dealer orders will be offered in 89 options classes by Timber Hill LLC, a division of the Interactive Brokers Group, and SLK Hull Derivatives LLC.
SLK Hull Derivatives will guarantee automatic executions in AT&T Corp. (T), Citigroup Inc.(C), Dell Computer Corp. (DELL), Lucent Technologies Inc. (LU), SBC Communications Inc. (SBC), and Sprint Corp. (FON).
Timber Hill will guarantee automatic executions in all of its options classes, including up to 100 contracts in BellSouth Corp. (BLS), Ford Motor Co. (F), General Electric Co. (GE), Intel Corp. (INTC), J.P. Morgan Chase & Co. (JPM), and Motorola Inc. (MOT). Auto execution means that orders are executed instantly, a level of efficiency historically reserved for retail investors.
Additional information about broker-dealer access to AUTOM, and a complete list of issues eligible for automatic execution, is available on the PHLX Web site at www.phlx.com.
The Philadelphia Stock Exchange was founded in 1790. The PHLX trades nearly 2,220 stocks, over 1,200 equity options, 13 sectors index options and currency options. For more information about the PHLX and its products, visit www.phlx.com.
 
Originally posted by def
Don,

here's another move in the right direction for the options world:
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here is two more:


1) The CBOE in the last week has rolled out ABP for all equity options. ABP allows customers to trade directly against customer orders at the CBOE via RAES (their auto-x system)


2) Customer order match is also coming to the PHLX. This is something Timber Hill (a member at the PHLX) is pushing very hard for. Expect this sometime in the third quarter.



It is getting better and will continue to get better as long as the floor based exchanges keep losing market share. The BOX will only help in this regard.
 
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