When is options scalping manipulative trading?

The derived order rule is an attempt by a retail customer to create liquidity. So back when everybody was 10 up - you would better a bid by a tick on a one lot - it would show 10 up and then you would hit the bid from another account. Sort of gaming the price. OP says this is multiple-list product and thin. I'm somewhat surprised this is a multiple list but thin and wide. It is the same concept across multiple trading venues. Improve one and in some cases, the other venues - can be linkage related to keep them in the NBBO - will improve to match. If they are the destination for a smart router they may need to improve to satisfy their router deal and not ship it over linkage. It costs to ship. Then hit the improved quote from a second account. Generally done in the deeps and cheaps as those are most likely to drive off an algo. If it's an option in a dark liquidity program - all the better.
There is more granularity in the mechanics.
 
arizonadreamer said:
Arturo100:

I thought I was clear but for clarification, here you go:

"The above account is trading thinly traded options in a manner that could be viewed as taking advantage of liquidity and price improvements. The client needs to modify their trading behavior to not have the appearance of taking advantage of liquidity / price improvements."

I was merely entering my orders within the spread with at very high success rate for this particular underlying. I had done the same for other underlyings countless times with no issues.
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Thanks for clarifying matters. I am really surprised by what they wrote to you. However, they are not mentioning any specific rule violation. Instead, they should have stated this clearly as already mentioned in this thread. Otherwise, to put it with their words, they brokerage behavior can be seen like acting as a bucket shop and needs to be modified.
 
@arizonadreamer, what do you think: I intend to change my limit offer say every 30 seconds, like you within the B/A spread of the others, in my case just for getting a favorable fill, not trying to do any scalping. Do you think this too can be flagged like in your case?
How fast did you change your order? Was it the frequent changing of the order, or was it rather the frequent scalping (buy lo & sell hi) that flagged yours?
 
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Don't draw the conclusion that the derived sale activity was the culprit. There are a number of behaviors that could generate a caution of that type. If it was the derived sale activity I'll bet the broker didn't identify it - whoever is the wholesaler behind their smart router would be more likely.
 
ETJ - Thank you for your response. I don't have a background on all the mechanics / terminology but I think I understand most of what you presented. The example you provided shows intentional manipulation on the part of the trader. Kind of devious. For the record, I just have one account with one broker and when I went one tick higher it usually filled right away. And not a one lot either. :) So if it is not "derived sale activity," what else could it be?
 
arturo100 said:
Thanks for clarifying matters. I am really surprised by what they wrote to you. However, they are not mentioning any specific rule violation. Instead, they should have stated this clearly as already mentioned in this thread. Otherwise, to put it with their words, they brokerage behavior can be seen like acting as a bucket shop and needs to be modified.
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You are welcome. Yes, I am basically on my own to figure this out. I didn't want to go the ET forum route but I keep hoping someone who has gone through this will chime in and say "this is what happened with me so you might want to look at this . . ."
 
earth_imperator said:
@arizonadreamer, what do you think: I intend to change my limit offer say every 30 seconds, like you within the B/A spread of the others, in my case just for getting a favorable fill, not trying to do any scalping. Do you think this too can be flagged like in your case?
How fast did you change your order? Was it the frequent changing of the order, or was it rather the frequent scalping (buy lo & sell hi) that flagged yours?
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I don't think that you changing the order every 30 seconds would be a problem. But what do I know anymore? :) In my research, the only time it should be a problem is if you have no intention of following through with your order and are just putting orders out there to give the illusion of size - I believe it falls into the categories of "spoofing" or "layering."

To answer your other questions, I changed orders fairly often, sometimes 30 seconds, sometimes even quicker. But I've done that in the past with other underlyings so I don't think that is the issue. The frequent scalping? Perhaps. That is what I am trying to figure out.
 
It was mantioned a while ago on this forum that there was a daily maximum number of bids+offers a retailer could place. If I recall it corectly it was 1500. This is a rather big number and it would be likely unattainable using hand placed orders, which I guess is your case. Other than that it is difficult to understand what your broker is talking about.

However, the fact that you have to guess why you are guilty is disappointing. It also reinforces my idea that your broker could be your counterpart on some of these trades or at least have a strong interest on it. I understand that you are not willing to release its name, but probably for your operativity you should choose one which is not also a market maker or liquidity provider in the option market.
 
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