Options market: quote-driven or order-driven?

N

nuandabi

In my understanding:

  • bonds, currencies, and commodities (cash, not derivatives) are traded in a quote driven market with a market maker who will either fill your order from its inventory or match you with another order. Of course, investors can try to negotiate better prices, either themselves or through their broker or agent. Anyway your order would not be posted in this system.
  • the EminiSp500 is traded in an order-driven market, with market makers acting only for particular reasons (block trades, etc., I know that it's now possible to track these trades thanks to a CME service). Everybody sees the same order book through the Depth of Market screen and everybody's orders are queued at one exchange through a Central Limit Order Book (again excluding block trades).
  • Equities are traded in a kind of hybrid market. The stock market has a hybrid structure between quote-driven and order-driven, where the market makers take care to keep the bid-ask spread within a certain limit. But from what I understand if I buy a stock on a particular market, the book I see on the Italian bank is the same one I see on Interactive.
My question is: what kind of market is the options market? In particular the options on EminiSp quoted by CME. An order-driven or a quote-driven market? A hybrid? I wonder if everybody sees the same order book through the Depth of Market screen and everybody's orders are queued at one exchange just like the case of ES (emini500 futures) or if my order is managed by my broker and disseminated through various exchanges?
I have read that in options market orders are crossed on the book and there are a series of designated market makers who intervene to guarantee a bid ask spread within a certain percentage limit of the price of the underlying, but in reality most of the transactions are not executed by market makers.
In addition, the CBOE holds complex order books for option spreads.
For example, if I open an account with an Italian bank and want to make a strategy on the miniSP options, are the listed strikes the same for me and for the interactive brokers client? Because from what I understand you can ask your broker to quote certain strikes that are usually not quoted; in any case, some brokers are available to quote on request while others are not.
And this makes me think that the strikes and bid ask spreads that I see on the Italian bank will be different from those that another one sees on interactive brokers.
I do not even understand if things change depending on the underlying. For example, are CME products different from CBOEs?

Thanks
 
MrMuppet said:
inventory driven...and everyone sees the same orderbook
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Thank you for the reply.
If everyone sees the same order book why are certain strikes RFQ (Request for Quote)?
Maybe that's true only for the Italian banks while for the CME and CBOE products everyone sees the same orderbook?

I hope I've made it clear
Thanks
P.s. inventory driven should mean pure quote driven market?
 
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nuandabi said:
Thank you for the reply.
If everyone sees the same order book why are certain strikes RFQ (Request for Quote)?
Maybe that's true only for the Italian banks while for the CME and CBOE products everyone sees the same orderbook?

I hope I've made it clear
Thanks
P.s. inventory driven should mean pure quote driven market?
More...
You CAN RFQ, but that doesn't mean it's all there is. Feel free to place an order. RFQ is usually just for doing size.
Inventory driven means that price is determined by the market makers inventory constraints which has nothing to do with how trades are executed
 
MrMuppet said:
You CAN RFQ, but that doesn't mean it's all there is. Feel free to place an order. RFQ is usually just for doing size.
Inventory driven means that price is determined by the market makers' inventory constraints which has nothing to do with how trades are executed
More...
What I mean is that if the price is determined by the market makers' constraints then the market is quote driven by definition (from Investopedia: A quote-driven market is an electronic stock exchange system in which prices are determined from bid and ask quotations made by market makers, dealers, or specialists. In a quote-driven market, also known as a price-driven market, dealers fill orders from their inventory or by matching them with other orders).
 
MrMuppet said:
inventory driven...and everyone sees the same orderbook
More...
I have found recently that everyone doesn't see the same order book. I had always thought in the options market you could see the best quote and size for each exchange. Apparently for a price you can also see depth of quotes (for non futures equity/index options such as SPX options on the CBOE)
 
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