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I just collared the head of IB ... we're in Florida at the 30 anniversary
options conference. He said there is a fair misunderstanding as to the
nature of the fee. He claims that the fee is rebated if the order is filled
after a limited ( ask them) number of cancel and replace orders. Only one
exchange has actually levied the fee and for a while only a couple of the
exchanges had the rule in place. You might want to reclassify under what
circumstances the fee get rebated.
It sounds something like this
Order 1 cost is a $1/ contract
Order two cancel and replace order #1 fee goes to $1.20/ contract
Order three cancel and replace order #2 fee goes to $1.40
Order 3 fills .40 cent rebate.
You will need to read their fine print to be sure.
If this is a "classic" example this is not an example of anyone adding
liquidity .. this is just someone chasing a market. If I ran a b/d I'm not
certain I wouldn't want to surcharge this user for using my network as well.
The economics of servicing this account at "rock bottom rates" are non
existent. This is IMHO .. a money losing account for the b/d. I'd
surcharge it or close it, I certainly wouldn't give it my best rate.
-----Original Message-----
From: Muskoka Joe [mailto:muskokaryan@xxxxxxxx]
Sent: Thursday, April 24, 2003 8:51 AM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] Option order cancellation fees
The cost of doing business has been reduced to almost
nothing over the past few years. When the concern is
over $1 on a $16K order nobody is listening, least of
all the SEC.
--- EarlA <earl.a@xxxxxxxxxx> wrote:
> So you penalize the small traders because they don't
> deal in 50 contracts at
> a time. The small traders pull back and now there is
> less liquidity ... but
> then the only good liquidity is liquidity provided
> by market makers ... what
> a crock. So too is the assumption that brokerage
> firms will not pass along
> the fee because they won't get hit with it 98% of
> the time. When you have a
> brokerage firm which runs razor thin commissions,
> they are going to assume
> that they will get hit with it because they can't
> afford to assume that they
> won't. Yes, maybe the fat cat brokerage firms like
> Schwab and Fidelity,
> which charge high commissions can eat the fee, but
> so what. And you can kiss
> GTC orders via the deep discount firms goodbye
> because their customers will
> get hit with a cancellation fee for canceling or
> modifying the order.
>
> I pay $1.00 to IB to execute one $16,000 contract
> for a deep in the money
> SPX Put and you guys charge me $1.20 to cancel an
> order ... what a deal!
>
> I can't wait to return the call I received from the
> SEC today!
>
> Earl
>
>
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