Auction allows the original order price gets improved.
Since you don't seem to get that simple concept, I give up and wish you good luck.
sp500 index options electronic auction mechanism
- Thread starter 2rosy
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Since you don't seem to get that simple concept, I give up and wish you good luck.
No, I do not get it because it makes no logical nor inherent sense. You get best price when you maximize the competition for best price and you do that by exposing it to the widest possible audience who can freely participate on both sides. An auction is an artificial construct that limits exposure and interaction. I get why auctions exist but they are definitely not there for price improvement.
If you make a statement, especially in such condescending way, you better are able to explain your thought process. Just flying away accusing the other of not following your train of thought, that you have not even laid out, is not beneficial to anyone. Why not explain in your own words why the auction in your opinion is superior to having the orders placed directly in the centralized order book?
Let's assume top of book is currently 5.67x5.68. I want to buy at 5.68 and put in a limit buy. Someone with sell interest could sell it to me at 5.68 by putting in a 5.68 on the offer, unless already done and given my size would take out all best offers. So, how, in your opinion, am I gonna get price improvement if I put my order into a segregated auction now? The only way I am better off is by getting a price below 5.68. Someone who wanted to sell at 5.67 could have done so already by hitting best bids. Letting only a few transact in sub-pennies could be a solution but it is incredibly inferior to enforcing same minimum price changes for EVERYONE. My point is that one single centralized order book where everyone is exposed to the exact same rules and regulations and order types would greatly benefit the market and a majority of market participants. You know a loooooooong time ago there was this concept of "equitable and fair markets" that was supposed to be applied to stock and derivative exchanges.
If you make a statement, especially in such condescending way, you better are able to explain your thought process. Just flying away accusing the other of not following your train of thought, that you have not even laid out, is not beneficial to anyone. Why not explain in your own words why the auction in your opinion is superior to having the orders placed directly in the centralized order book?
Let's assume top of book is currently 5.67x5.68. I want to buy at 5.68 and put in a limit buy. Someone with sell interest could sell it to me at 5.68 by putting in a 5.68 on the offer, unless already done and given my size would take out all best offers. So, how, in your opinion, am I gonna get price improvement if I put my order into a segregated auction now? The only way I am better off is by getting a price below 5.68. Someone who wanted to sell at 5.67 could have done so already by hitting best bids. Letting only a few transact in sub-pennies could be a solution but it is incredibly inferior to enforcing same minimum price changes for EVERYONE. My point is that one single centralized order book where everyone is exposed to the exact same rules and regulations and order types would greatly benefit the market and a majority of market participants. You know a loooooooong time ago there was this concept of "equitable and fair markets" that was supposed to be applied to stock and derivative exchanges.
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calcutta auctions seem to overpay for purchases
Participants always overpay where there is a lack of transparency and a few have special privileges. We still don't have answers how it makes economic sense to have a stock short sold at more than 100% of free float. We still don't have answers why we have 16 or so exchanges in the US alone. I mean, I do have my answers but we greatly overpay for the privilege of the few. I only waste my time harping about this in the hopes it opens more eyes.
calcutta auctions seem to overpay for purchases
Spread is essentially two option orders simultaneously. So if they allow this AIM for option orders I don't see why it shouldn't apply to spread orders too. There is no reason that it shouldn't.
Assuming my broker doesn't accept payment for order flows of course. How would this work if the broker accepts payment for order flows? My order(s) will always be sent to any MM's who paid to my broker for executing my orders. How would they reach the "market participants" in the exchange for "negotiate price improvements"?
From the retail trader perspective, it's only 2 option orders. From an exchange perspective, it's a single trading instrument, meaning that when the spread trades, the 2 legs have to trade. One leg cannot trade while the other does. The spread print has its own price, from which leg prices are derived.
Also, there are US option exchanges where COB and regular leg book can interact. And since there are rules for auction to respect, allowing auctions on Complex Order is not that simple.
One of the goals of Brokers is to present US option trading as one market by unifying as much as possible the way clients can trade. But in fact, there are 16 different option exchanges, with different trading rules and market models. One exchange can support one feature, while another one doesn't, or they do it, but differently. Generally speaking, retail clients don't see that.
Auction mechanisms were originally developed to allow crosses (internalization) in the US option market. The incentive given to the regulators were to give the opportunity to retail client to get price improvement on their orders.
For an auction to start, it needs 2 things (simple example cause it may be more complex):
1) A retail order (called Public Customer order)
2) A market participant willing to cross (internalize) that order, meaning willing to take the opposite side of the retail order.
Then an auction is launched for other market participants to submit orders to improve the original retail order. Any remaining quantity left that has not been improved is traded against the auction participant who submit the auction.
There are mechanisms that exists allowing market participant to send their order flow to other participant in order for them to start an auction.
Maybe a link with more details would be helpful:
https://boxoptions.com/about/price-improvement/
Btw, this is the implementation at one exchange. Many other exchanges also support auctions, and they have their own set of rules.
You definitely are one of the tech boys of an exchange, no doubt about it. Price improvement. Please don't make me laugh. You are mislead by your marketing department's glossy materials. This is a system that ONLY benefits hft, pfof houses, those who pay to play via special access data and order types and the exchanges who charge a kingdom for data access. Retail never was intended to partake. Please wake up, what you say makes you appear incredibly naive.
You shied away from a fair and honest question: how is ONE simple centralized exchange with an order book that handles all orders with fair and equitable access by all not the solution to this chaotic and unfair status quo? I tell you why hardly anybody of the stakeholders pursues this improvement, it's because powerful parties at the table greatly profit from this fragmented, intentionally complex and messed up system. The less transparency the better. The less have privileged access the greater the per party benefit.
Either you are naive or you have a vested interest to disguise the truth.
You shied away from a fair and honest question: how is ONE simple centralized exchange with an order book that handles all orders with fair and equitable access by all not the solution to this chaotic and unfair status quo? I tell you why hardly anybody of the stakeholders pursues this improvement, it's because powerful parties at the table greatly profit from this fragmented, intentionally complex and messed up system. The less transparency the better. The less have privileged access the greater the per party benefit.
Either you are naive or you have a vested interest to disguise the truth.
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