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The issue for the exchanges is purely a technical one. Bandwidth is a
major fixed expense. Constant updating of prices for far OTM options
that don't trade takes as much bandwidth as updates for ATMs. All
traders would have to be penalized to pay for the construction of more
bandwidth. Instead, the exchange has taxed bandwidth use, which will
hit hardest those who use bandwidth excessively.
That said, I think I already made the observation in a previous message
that Eurex, which I am closer to, only taxes bandwidth use above a
'normal' amount, which means the typical retail customer never sees it.
The tax being charged in the US seems to apply to every update, and so
is penalizing those who did not cause the problem, which does look
unfair.
Regards
DanG
Terry B. Rhodes wrote:
I'm a little slow, so correct me if I'm wrong, but
correctly interpreted this really means... ...Firms were
adding liquidity, cutting into our spreads (to the benefit
of retail customers), so we all got together and decided
to penalize them with a tax instead of via true competition.
Sounds like the SOES battle all over again.
It seems especially wrong that the ISE is taking part in
this. In the past I've always routed my orders to them as
a sign of support. This will no longer be true.
regards,
tbr
From: Mano Appapillai <manoappapillai@xxxxxxxxx>
Subject: Re: Option order cancellation fees
Here is the response from a person closer to the Exchanges :
>
There were some firms that where sending thousands of orders
per second and then cancel and replacing them with a slight move of the underlying.
They were essentially trying to act as market makers. This not only ties up the resources of the exchange,
but also of the brokerage firms and ISVs. Just think of all the option classes and strike prices they
would constantly readjust and you can imagine the order flow without any revenue generating trading occurring.
Mano Appapillai
4565 Saddle Mountain Ct
San Diego, CA 92130
Tel : 858 794 8494
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