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Re: GEN - cboe



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The unfortunate problem is that the exchanges don't own their own quotes
in the case of options.
<P>Curiously enough I was told by my office that CBOE never actually lost
power today.&nbsp; They powered down because they were told ComEd was going
to take the grid down.&nbsp; They browned out the floor and went to back
- up.&nbsp; The word went out that since CBOT was down CBOE was as well.&nbsp;
It them became a self fulfilling prophecy.&nbsp; They ran back - up and
are still running back - up right now.&nbsp; Everything should be normal
tomorow(I hope).
<P>ROBERT ROESKE wrote:
<BLOCKQUOTE TYPE=CITE>&nbsp;<FONT SIZE=-1>So this Ready Killowatt problem
has pointed out an achillis heal in delivery of cboe data to the end user.&nbsp;
Where are the circuit breakers for faulty information?&nbsp; Where is the
management that should have addressed these issues of power backup and
data integrity?&nbsp; The hardware and software technology has been here
for years to do so and we know the money is there for sure.&nbsp; Management
at CBOE and PC Quote need to address the problem and not point fingers.&nbsp;
They should have had the foresight to design and implement such technology
with redundancy years ago.&nbsp; I have no grand illusion that it will
be addressed in my lifetime.</FONT>&nbsp;<FONT SIZE=-1>BobR</FONT>
<BLOCKQUOTE 
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message -----</DIV>

<DIV 
  style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
THE DOCTOR</DIV>

<DIV style="FONT: 10pt arial"><B>To:</B> <A HREF="mailto:bobrabcd@xxxxxxxxxxxxx"; title="bobrabcd@xxxxxxxxxxxxx">ROBERT
ROESKE</A></DIV>

<DIV style="FONT: 10pt arial"><B>Cc:</B> RealTraders</DIV>

<DIV style="FONT: 10pt arial"><B>Sent:</B> Thursday, August 12, 1999 1:06
PM</DIV>

<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: GEN - cboe</DIV>
&nbsp;Just an FYI .... cboe does do the actual calculation for VIX.&nbsp;
PC Quote does the calculation and sends it out over OPRA.&nbsp; So all
of Chicago could go dark ..... as long as PC Quote wants to send data you
could get a VIX.&nbsp; Without any OEX puts and calls trading, the disseminated
number would be bogus.
<P>ROBERT ROESKE wrote:
<BLOCKQUOTE TYPE="CITE"><STYLE></STYLE>
<FONT SIZE=-1>That's interesting,
cboe shuts down, but VIX keeps updating and my calls have doubled when
the oex went sideways.&nbsp; What a wonderful post eclipse phenonenon!</FONT>
<FONT SIZE=-1>BR</FONT></BLOCKQUOTE>
</BLOCKQUOTE>
</BLOCKQUOTE>

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</x-html>From ???@??? Thu Aug 12 17:11:13 1999
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Message-ID: <039801bee516$cbce78e0$06bbfea9@xxx>
From: "ROBERT ROESKE" <bobrabcd@xxxxxxxxxxxxx>
To: "RAY RAFFURTY" <rrraff@xxxxxxxx>, "RealTraders" <realtraders@xxxxxxxxxxxx>
Cc: "Real Traders" <realtraders@xxxxxxxxxxxxx>
References: <029901bee4f6$89b54a80$06bbfea9@xxx> <003301bee50f$e03fcba0$e995b7ce@xxxxxxx>
Subject: Re: GEN - cboe
Date: Thu, 12 Aug 1999 16:02:46 -0700
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<DIV><FONT size=2>It was a crazy period.&nbsp; I was comparing BMI quotes 
with&nbsp;an electronic broker at the same time and when BMI said the calls had 
doubled from 7 to 14,&nbsp;preferredtrade was quoting them at 99.&nbsp; Whew 
what a trading opportunity, and the OEX was rolling over.&nbsp; It was like a 
time warp.&nbsp; Wonder how many electronic brokerages have adjustments to make 
for wrongful executions.&nbsp; They must have some kind of out of range tick 
detection.&nbsp; Maybe Arch will get his 1000 point drop afterall when traders 
can't get access to their accounts.&nbsp; Someone(s) are going to get screwed 
royally when that day comes.&nbsp; This is just a prelude.</FONT></DIV>
<DIV>&nbsp;</DIV>
<DIV><FONT size=2>BobR</FONT></DIV>
<BLOCKQUOTE 
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
  <DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
  <DIV 
  style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B> 
  RAY RAFFURTY </DIV>
  <DIV style="FONT: 10pt arial"><B>To:</B> <A 
  href="mailto:realtraders@xxxxxxxxxxxx"; 
  title=realtraders@xxxxxxxxxxxx>RealTraders</A> ; <A 
  href="mailto:bobrabcd@xxxxxxxxxxxxx"; title=bobrabcd@xxxxxxxxxxxxx>ROBERT 
  ROESKE</A> </DIV>
  <DIV style="FONT: 10pt arial"><B>Cc:</B> <A 
  href="mailto:realtraders@xxxxxxxxxxxxx"; title=realtraders@xxxxxxxxxxxxx>Real 
  Traders</A> </DIV>
  <DIV style="FONT: 10pt arial"><B>Sent:</B> Thursday, August 12, 1999 3:13 
  PM</DIV>
  <DIV style="FONT: 10pt arial"><B>Subject:</B> Re: GEN - cboe</DIV>
  <DIV><BR></DIV>
  <DIV>Hi Bob,</DIV>
  <DIV>&nbsp;</DIV>
  <DIV>That is interesting, I show a last quote on VIX of 26.07 at 2:58 PM 
  central time. I show OEX option trades thru 3:14&nbsp;Central time.&nbsp; 
  Perhaps electronic trading on the OEX was not affected.&nbsp; If that is so, 
  I'm pissed.&nbsp; I missed a 3 point short because they announces the shut 
  down was coming and I passed on the trade.&nbsp; Oh well, tomorrow is another 
  day.</DIV>
  <DIV>&nbsp;</DIV>
  <DIV>&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 
  &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 
  &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 
  Good luck and good trading,</DIV>
  <DIV>&nbsp;</DIV>
  <DIV>&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 
  &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 
  &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 
  &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Ray Raffurty</DIV>
  <DIV>&nbsp;</DIV>
  <DIV>&nbsp;</DIV>
  <DIV>----- Original Message ----- </DIV>
  <BLOCKQUOTE 
  style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
    <DIV 
    style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B> 
    <A href="mailto:bobrabcd@xxxxxxxxxxxxx"; title=bobrabcd@xxxxxxxxxxxxx>ROBERT 
    ROESKE</A> </DIV>
    <DIV style="FONT: 10pt arial"><B>To:</B> <A 
    href="mailto:realtraders@xxxxxxxxxxxx"; 
    title=realtraders@xxxxxxxxxxxx>RealTraders</A> </DIV>
    <DIV style="FONT: 10pt arial"><B>Sent:</B> Thursday, August 12, 1999 3:11 
    PM</DIV>
    <DIV style="FONT: 10pt arial"><B>Subject:</B> GEN - cboe</DIV>
    <DIV><BR></DIV>
    <DIV><FONT size=2>That's interesting, cboe shuts down, but VIX keeps 
    updating and my calls have doubled when the oex went sideways.&nbsp; What a 
    wonderful post eclipse phenonenon!</FONT></DIV>
    <DIV>&nbsp;</DIV>
    <DIV><FONT size=2>BR</FONT></DIV></BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
</x-html>From ???@??? Thu Aug 12 19:35:27 1999
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Date: Thu, 12 Aug 1999 18:15:19 -0500
From: THE DOCTOR <droex@xxxxxxxxxxxx>
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Subject: Re: OPTN: How can they do that?
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Status:   

The way RAE's works, currently, is that the market makers can chose to sign on
or chose not to.  There are a  series of rules about signing off and the
obligation to be on during expiration, but for the moment I'll keep it simple.
In essence the system turns a wheel with market maker names.  So if there are 5
market makers signed on the first RAEs trade goes to a randomly selected market
maker.  Then that market maker will get hit with every fifth order.  They do not
receive a message saying "ORDER TO BUY" but rather a message saying "YOU BOUGHT
XXXXXX".  It is done in this fashion for the obvious reason of fairness.  Now
once they have been hit the crowd can choose to change the quotes.  At CBOE
virtually every quote comes from an auto quote system.  This is why if you are
watching an option chain of quotes you will see the "cascading" waterfall effect
when the quotes change.

Auto quote takes a volatility from the crowd(they physically input it)and from
that vol. drives all the quotes.  Now some things to understand.  The crowd does
not have to use the same vol. for every series.....so for example they can
skew(higher volatility)OTM index put options.  The auto quote system drives from
the crowd volatility and the last price of the stock/index from the quote
vendor.  There is even a wrinkle here ... auto quote used to drive off every
trade in the stock/index.  This became a capacity nightmare in some very
volatile issues like an AOL or YAHOO.  So in very volatile issues the system may
be set to sample only every 5th print in the underlying ... otherwise the pipe
of quote would get jammed almost all the time.

RAEs fills off of the broadcast quote and the fill is untouched by human
hands(rules are different at some of the other exchanges where some traders get
a second look before they fill).  We have filed with the SEC to increase RAE's
floor wide to 100 contract, although it is unlikely that you would want or see
100 up in equities.  There are clearly some challenges with technology.  If I
had to set my trading to autopilot might I enforce a b/a spread that is actually
larger than circumstances require?  In reality RAEs and other electronic systems
give you instant gratification and maybe that is not always the best available
market .... there is a cost to instant gratification.

Some other issues .... the crowd can choose to take an option series off of auto
quote.  So they might leave the back months on and the deeps and the cheap in
the front month, but trade the ATM series manually.  They will do this in very
volatile issues.

Also currently the automated systems are only available for customer orders.
Brokerage firms trading for their own account and market makers cannot use RAEs.

There is also an electronic order book, visible to the floor, at CBOE.  The
electronic book, like RAEs, is currently only available to customers.  The book
has trade priority, except for spread trades.  Many on-line account are actually
just routing directly into the CBOE order routing system.  Market
orders(currently 20 or less {except in DJX and interest rate options where the
amount is higher})go directly to RAEs,  limit order more than 2 ticks away from
the disseminated market go to the E book, other orders print (physically or
electronically depending on the firm)in the trading crowd where a floor broker
handles the order.  At CBOE Floor brokers cannot trade for their own account...
a separation of agency and principal.  So if you are the Schwab broker in AOL
... all you can do in AOL is fill.

Hope this helps,

If you are ever in Chicago and want a tour of the floor call me at CBOE at 1 800
OPTIONS and then wait for the operator and ask for extension 7843... or shoot me
an e mail.  I'll stand you up in the OEX pit or the AOL crowd, both can get
pretty wild.

ROBERT ROESKE wrote:

> Thanks for the straight answer Alex.  Tell me, who takes responsibility for
> the cboe side of a specific RAES trade?  A specific market maker? A
> collective system?  Tell us more about the Autoquote system.  It should be
> interesting.
>
> BobR
>
> ----- Original Message -----
> From: THE DOCTOR <droex@xxxxxxxxxxxx>
> To: ROBERT ROESKE <bobrabcd@xxxxxxxxxxxxx>
> Cc: Dick Crotinger <dangle@xxxxxxx>; kohath <kohath@xxxxxxxxxxxxx>;
> <realtraders@xxxxxxxxxxxx>
> Sent: Thursday, August 12, 1999 3:32 PM
> Subject: Re: OPTN: How can they do that?
>
> > Robret,
> >
> > You may chose to believe whatever you want...but you were lied to.  RAES
> is
> > driven by the autoquote system...that is correct.  The crowd can change
> the
> > bid/ask, but there is no feature built into the RAEs system to
> automatically
> > change the b/a after a trade has hit.  Insider or not the answer you got
> was
> > pure bullshit.  You should be aware, however that the fact that you used
> RAE's
> > for multiple orders most likely means your order, if originating from a
> specific
> > brokerage wirecode, were declared RAE's ineligible.  Breaking order ups to
> > qualify for RAE's is a violation of the rule at CBOE, but be that as it
> may,
> > there is no ability to skew RAE's to adjust.  What the crowd would do if
> they
> > were getting banged a lot is take that series off of RAE's and simply
> trade it
> > manually.  They can do that and you would be able to detect that your
> series was
> > no longer on RAEs as the quote would no longer have an A in the quote
> field.  If
> > you would like to see the system in action, let me know and I will
> personally
> > take you on the trade floor so as to demystify the bullshit you were told.
> >
> > ROBERT ROESKE wrote:
> >
> > > There may be more to it than meets the eye.  The reason is RAES software
> is
> > > programmed to emulate a market maker under certain conditions.  For
> example,
> > > where do you believe that OEX RAES bid ask quotes come from?  Do you
> think
> > > they come from someone keying them in or do they come from a software
> > > routine that calculates and anticipates the next trade?  Sounds devious
> > > doesn't it.  Well some years back I was hammering RAES with some trades
> in
> > > sequence during a lightly traded Friday and each time I placed an order
> to
> > > sell to close, the Bid would drop a tick.  The next time I had a pot
> load of
> > > options to unload I discovered that if I delayed the next trade by a few
> > > minutes, the bid would "float" back up.  It was rather suspicious so I
> > > inquired about this from someone who should know since he is a cboe
> insider
> > > and his answer was, yes, the RAES software will automatically change the
> bid
> > > ask in its favor if it gets hit with a flurry of trades.  After all,
> that is
> > > what a live market maker does, doesn't he.  So, Dick, it sounds like you
> got
> > > the shaft by a software routine.  That my friend, is electronic trading.
> > >
> > > BobR
> > >
> > > ----- Original Message -----
> > > From: Dick Crotinger <dangle@xxxxxxx>
> > > To: kohath <kohath@xxxxxxxxxxxxx>; <realtraders@xxxxxxxxxxxx>
> > > Sent: Thursday, August 12, 1999 2:35 PM
> > > Subject: Re: OPTN: How can they do that?
> > >
> > > > The Market WAS at 9/16 when your order was filled.  That is the end of
> it.
> > > > >Kohath
> > > > >
> > > > I agree... but the market moved there because I placed my order.
> > > >
> > > > That is the problem I have with it.
> > > >
> > > > That is the end of it.
> > > >
> > > > Dick Crotinger
> > > >
> > > >
> > > >
> > > >
> > > >
> >
> >
> >