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As someone who runs an exchange these are not the relevant arguments.
Bandwidth is a bit of an issue, but the real issue is the derived order.
The liquidity providers in options are there all the time. Feel free to
better a market, but make a market in size and don't pull it on a
situational basis.
The derived order problem is the key here. A MM guarantees a firm some size
market in their names. It may be 10 contracts it may be 50 contracts ... an
example is Schwab which requires a 50 up guarantee for consideration before
sending orders to specific MM's. You enter a 5 lot and the MM has to derive
the balance, You put in 5 lot and they autoquote the derived balance for
the difference they guarantee.
1. This is good
2. You hit the derived balance from a different account
3. You pull and their autoquote adjusts that series
4. You pull and their autoquote has to adjust dozens of series (this is the
bandwidth concern)
If it were just a fee issue and the exchanges were fee crazy why would they
have eliminated fees ( not true for Index and ETF options) ... why not just
reinstitute a penny on everyone.
The fee is also based on an overall percentage. So if a firm charges you on
a specific trade in expectation of being charged they may, in fact, receive
a fee that they may never be charged. I assume it's too late to go back and
charge it after being assessed.
If MM's pull their quotes they are fined. If you want to become a liquidity
provider it appears that both the Boston and PCX plus will allow free access
market making of some form when they open. They will have some requirement
about minimum quoting rules though.
The core issue here is the industry has a handful of folks who abuse the
system ...... we can argue forever about what abuse is, but this fee will
not apply to about 98% of the brokerage firms that trade options.
Alex Jacobson
Vice President
Education
International Securities Exchange
(212)897 8125
(877)720 9918(SKYPAGE)
(847)607 0559 (Home)
ajacobson@xxxxxxxxxxxxxx
-----Original Message-----
From: qwerasdf12345 [mailto:prog1@xxxxxxxxxxxxxx]
Sent: Monday, April 21, 2003 8:06 AM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] Option order cancellation fees
Well yes, it puts some load on exchanges' computers, but it also
vastly improves liquidity and more to the point, tightens spreads,
possibly to the point of crowding out exchange members doing the same
thing at a more leisurely pace. A little bird tells me that tight
spreads aren't always in the interests of exchange members, so that's
where the real issue lies.
--- In realtraders@xxxxxxxxxxxxxxx, Mano Appapillai
<manoappapillai@xxxx> wrote:
> 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
>
> "The only thing necessary for evil to triumph is for good men to do
nothing." - Edmund Burke (1729-97)
>
>
>
>
>
> ---------------------------------
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