Option Opening Rotation

spreadgod · Jul 12, 2005

Does anyone have any information about linkage between the options exchanges during their opening rotation?

I had an instance where a market order to buy was routed to CBOE after the PHLX had already traded the option. The CBOE did not open their trading until 10 minutes later and I got the bid price at that time rather than at the time the market order was placed. The bid moved from 9.70 to 10.20 during that time.

I was told that even though the BBO was 9.30 x 9.70 at the time the order was placed, the exchanges do not go out on linkage during their opening rotation. I am due whatever the opening bid is on the exchange the order was routed to, even though the option had already traded 10 minutes earlier on another exchange.

Is this true?

freehouse · Jul 12, 2005

Quote from spreadgod:

Does anyone have any information about linkage between the options exchanges during their opening rotation?

I had an instance where a market order to buy was routed to CBOE after the PHLX had already traded the option. The CBOE did not open their trading until 10 minutes later and I got the bid price at that time rather than at the time the market order was placed. The bid moved from 9.70 to 10.20 during that time.

I was told that even though the BBO was 9.30 x 9.70 at the time the order was placed, the exchanges do not go out on linkage during their opening rotation. I am due whatever the opening bid is on the exchange the order was routed to, even though the option had already traded 10 minutes earlier on another exchange.

Is this true?

If your order is at another exchange during an opening rotation, you will get the price on that exchange, not the NBBO. This is true even if the price is much better or much worse than the current NBBO.

spreadgod · Jul 27, 2005

Thanks freehouse! I noticed I also made a mistake in the original post. I kept saying bid when I meant ask.

Do you or anyone else know a broker that allows direct routing online to the option exchanges? Or at the least, a place to get the quotes of each of these exchanges.

qazmax · Jul 28, 2005

1. The real question is who routed your order to the CBOE you or your broker. They have a due diligence to get you the best price. They may argue that the PHLX does such a tiny percentage of that stock they felt safer waiting until the CBOE is open. I say that without checking the percentages...

2. I am realtively sure the CBOE could have linked your order to the PHLX before they were open. If they had a live marketable order then they should have.

freehouse · Jul 28, 2005

Quote from qazmax:

1. The real question is who routed your order to the CBOE you or your broker. They have a due diligence to get you the best price. They may argue that the PHLX does such a tiny percentage of that stock they felt safer waiting until the CBOE is open. I say that without checking the percentages...

2. I am realtively sure the CBOE could have linked your order to the PHLX before they were open. If they had a live marketable order then they should have.

That's true, but the broker does not know which exchange will open first. The broker does not know what is for sale or to buy on which exchange in the opening rotation.

That is why anything goes during the opening rotation and locked/crossed rules do not come into play.

qazmax · Jul 29, 2005

Quote from freehouse:

That's true, but the broker does not know which exchange will open first. The broker does not know what is for sale or to buy on which exchange in the opening rotation.

That is why anything goes during the opening rotation and locked/crossed rules do not come into play.

10 minutes can feel like a lifetime with certain options.

Excahange rules may not come into play, but a brokers obligation of best execution and protecting the customer's interest is always in play.

Ultimately it will come down to how relentlessly you complain and how much your broker values your account, as to whether or not they compensate you.

Squeaky wheel always gets the grease.... unforntuately....

freehouse · Jul 29, 2005

Quote from qazmax:

10 minutes can feel like a lifetime with certain options.

Excahange rules may not come into play, but a brokers obligation of best execution and protecting the customer's interest is always in play.

Ultimately it will come down to how relentlessly you complain and how much your broker values your account, as to whether or not they compensate you.

Squeaky wheel always gets the grease.... unforntuately....

Yes, but as long as the broker places an order at an exchange, they will not get in any trouble. You can bitch and moan all you want, and nothing will happen. Good luck.

IBsoft · Jul 29, 2005

Quote from spreadgod:

Does anyone have any information about linkage between the options exchanges during their opening rotation?

I had an instance where a market order to buy was routed to CBOE after the PHLX had already traded the option. The CBOE did not open their trading until 10 minutes later and I got the bid price at that time rather than at the time the market order was placed. The bid moved from 9.70 to 10.20 during that time.

I was told that even though the BBO was 9.30 x 9.70 at the time the order was placed, the exchanges do not go out on linkage during their opening rotation. I am due whatever the opening bid is on the exchange the order was routed to, even though the option had already traded 10 minutes earlier on another exchange.

Is this true?

I think if you used IB Smart you would be happy.

Before the open IB sends your order to an exchange. If another exchange opens sooner, we will not let your order sit at the original destination for longer than 10 seconds. We will re-route it to the already opened exchange instead.

freehouse · Jul 29, 2005

Here is part of the rules from the ISE. Other exchanges have similiar rules.

(4) Protection of Customers. Whenever subparagraph (a)(1) applies, if Public Customer orders (or P/A Orders representing Public Customer orders) constituted either or both sides of the transaction involved in the Trade-Through, each such Public Customer order (or P/A Order) shall receive:

(i) the price that caused the Trade-Through; or
(ii) the price at which the bid or offer traded through was satisfied, if it was satisfied pursuant to subparagraph (a)(1)(i), or the adjusted price, if there was an adjustment, pursuant to subparagraph (a)(1)(ii), whichever price is most beneficial to the Public Customer order. Resulting differences in prices shall be the responsibility of the Member who initiated the Trade-Through.

(b) Exceptions to Trade-Through Liability. The provisions of paragraph (a) pertaining to the satisfaction of Trade-Throughs shall not apply under the following circumstances:

(1) the Member who initiated the Trade-Through made every reasonable effort to avoid the Trade-Through, but was unable to do so because of a systems/equipment failure or malfunction;

(2) the Member trades through the market of a Participant Exchange to which such Member had sent a P/A Order or Principal Order, and within 20 seconds of sending such order the receiving Participant Exchange had neither executed the order in full nor adjusted the quotation traded through to a price inferior to the Reference Price of the P/A Order or Principal Order;

(3) the bid or offer traded through was being disseminated from a Participant Exchange whose quotes were Non-Firm with respect to such Eligible Option Class;

(4) the Trade-Through was other than a Third Participating Market Center Trade-Through and occurred during a period when, with respect to the Eligible Option Class, the Exchange's quotes were Non-Firm; provided, however, that, unless one of the other conditions of this paragraph (b) applies, during any such period: (i) Members shall make every reasonable effort to avoid trading through the firm quotes of another Participant Exchange; and (ii) it shall not be considered an exception to paragraph (a) if a Member regularly trades through the firm quotes of another Participant Exchange during such period;

(5) the bid or offer traded through was being disseminated by a Participant Exchange during a trading rotation in the Eligible Option Class;

(6) the transaction that caused the Trade-Through occurred during a trading rotation;

spreadgod · Aug 1, 2005

Quote from IBsoft:

I think if you used IB Smart you would be happy.

Before the open IB sends your order to an exchange. If another exchange opens sooner, we will not let your order sit at the original destination for longer than 10 seconds. We will re-route it to the already opened exchange instead.

IBsoft,

That sounds perfect for market orders. I went to IB's website but I couldn't find anything about getting quotes or routing to each exchange directly.

Does IB offer this service?

Option Opening Rotation

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