Should i route my order to the MMs ?

shyhh · May 30, 2001

Hi Guys,

I have observed the Level 2 screen for a while and notice that the ECN spread can be quite wide when a stock is on the move. And during such times, the Market Makers price spread is usually thinner, offering a better quote on both the bid & ask.

I am hesitant to hit the MM quotes because i read somewhere about the MMs can hold on to the trade confirmation for as long as 2 minutes. I think this is not acceptable, since the MMs would almost always reject the order is the trade goes against them. Is there a way to get round the MMs by using SOES ? Can you guys update me on how the SOES works in IB ?

mjt · May 30, 2001

SOES is an automatic, instantaneous execution as long as you are executing within the SOES rules. (not trying to SOES above the tier size, not trying to SOES twice on the same side on the same security within 5 minutes.) I have used SOES with IB, and it executes instantaneously. The problem with SOES is that if you are in a fast market, what you see might not be what you get. You could end up behind a lot of other traders who are trying to SOES the same quote. On a slower market, especially on a stock with less liquidity where there may not be adequate ECN representation, SOES can be a great tool.

I think what you are referring to in the delay is Selectnet. I don't know where 2 minutes comes from. My understanding is if you preference a market maker through Selectnet, they have 30 seconds to make a decision about whether to take your order. If they haven't made a decision, you can't cancel until 10 seconds after you placed your order. Someone tell me if I am mistaken on these times.

praetorian2 · May 30, 2001

If you want in, or out, just cross the market. If you cross it enough on island or snet, someone will take you.

dlincke · May 30, 2001

I absolutely love those people on ISLD that have no clue about order routing and just cross the market hoping someone will take their shares or maybe even believing that ISLD is working the order for them. I routinely get fills from people like that up to half a point out of market right at short-term bottoms and tops.

As for dealing with MMs, under the right circumstances you can get excellent fills from MMs. The only time where an MM can decide if he wants to fill you or not is when his liability at his current price level is already exhausted when your order comes in. Otherwise you're due a fill and if he backs away you can have your broker call Market Reg. or the MM directly to file a complaint and get you your fill. You just have to know in what situations to avoid dealing with MMs and pay up for an ECN excution instead.

DelawareDan · May 30, 2001

Originally posted by praetorian2
If you want in, or out, just cross the market. If you cross it enough on island or snet, someone will take you.

Can someone please define 'cross the market'?
Thanks

dlincke · May 30, 2001

A market is said to be crossed when the bid price is higher than the asking price. When bid and ask are equal the market is said to be locked. Most ECNs will reject orders that would result in a crossed or locked markets. Last fall ISLD started allowing such orders. They are handled in a special way displaying them .01 above/below the inside bid/ask but executing at the specified limit price thus providing price improvement to the counterparty. INCA offers similar functionality but unlike ISLD you are executed at the current inside bid for (short) sales/ask for buys upon execution. Technically, SNet cannot cross the market since it is not a quoting but a negotiation and execution system, but it can be used to execute against market participants that are outside the inside market.

shyhh · Jun 1, 2001

Originally posted by dlincke
The only time where an MM can decide if he wants to fill you or not is when his liability at his current price level is already exhausted when your order comes in.

Hi dlincke,

When you say liabilities of the MMs, do u mean the bid/ask size ? If so, wouldn't the MM's bid/ask be removed once the MM's order has been filled at the specific price point?

dlincke · Jun 1, 2001

The MM's liability is his quoted display size on the bid and the ask side. In NMS securities he actually faces dual liability as he can be accessed simultaneously through SNet and SOES with the latter resulting in automatic executions. Once an MM's liability has been exhausted he has a choice of either moving his market or refreshing his quote and filling more at that price level. With SuperSOES he will be automatically moved out of the way once his display and reserve size are exhausted.