GREENWICH, Conn., Oct. 24 /PRNewswire/ -- In the latest step in
cascading transaction costs brought on by technology, as of 1:50 p.m. ET
today Interactive Brokers has cut the minimum price difference for U.S.
listed options from a nickel to a penny (i.e. $5 per contract to $1 per
contract). Online Brokers and Direct Market Access providers have been
under pressure to cut prices for several years. The listed options markets
have been relatively immune, but no longer. The SEC mandated a penny pilot
program beginning on the 27th of January 2007, in which the six U.S.
options exchanges will have to reduce the minimum price change from 5 to 1
cent for options listed on 13 underlying stocks. Interactive Brokers is
jumping the gun, and in a first for the U.S. options industry, will make
penny pricing on options available as of today.
Interactive Brokers Group ("IBG") has developed a system to allow
customers and liquidity providers to display penny prices in the IB system
and to try to trade against other participants' penny prices displayed in
the IB system. IB will attempt to match penny-priced bids and offers and
send them to an option exchange for execution:
-- If you want to post an options price in pennies for other IB users to
try to trade against, you can send an order to IB priced in a penny
increment (e.g., buy 10 XYZ contracts at $2.07). The order will be
treated as a discretionary order, as follows: IB will round the order
(down for a bid and up for an offer) to the nearest nickel increment
(or dime depending on the premium) and send the nickel-priced order to
an options exchange so that it will be working (in this example, IB
will send an order to an exchange to buy 10 XYZ at $2.05).
-- Then, unless you instruct us to hide your penny price, IB will also
display your penny price (with size) on the public IB website and
through the IB Trader Workstation (if your price is the best price in
our system). Your penny price displayed on the IB website and TWS is an
indication of interest to others that you are willing to trade at a
more aggressive price (e.g. bidding $2.07) than the nickel-priced order
being displayed in the national options market (e.g., bidding $2.05).
-- If another participant in the system sends an order that can be matched
against your penny price (a contra-side order), IB will attempt to
execute a trade at a U.S. options exchange using one of the available
penny auction pricing mechanisms (such as the Price Improvement Period
auction on the Boston Options Exchange or the Price Improvement
Mechanism on the International Securities Exchange).
-- During the penny auction process that takes place at the exchange, your
order may be executed in whole or in part against the contra-side order
at a price no worse for you than the price you specified (i.e., your
order to buy 10 contracts at $2.07 will be executed at no higher than
$2.07 but may be executed at a lower price depending on the contra-side
order and depending on what happens during the auction). Of course, you
may not trade at all if during the auction process another participant
posts a higher-priced bid (e.g., $2.08).
-- Auctions typically last for three seconds and after this time we will
report an execution back to you (if your order was executed) or if we
were unable fully to execute your order we will re-display your penny
indication (if your price is the best price in our system).
-- As an IB customer, you will also be able to send orders in to try to
trade against penny prices displayed by others in the IB system. In
that case you will have the opportunity to trade at a better price than
the nickel or dime prices displayed in the national options market
because someone else on the system has indicated that they are willing
to give you a better price.
-- To make the system more attractive, professional liquidity providers
such as IB's affiliate Timber Hill (one of the largest U.S. options
market makers) and others will be able to post penny indications in the
system for you to trade against, and will also have the opportunity to
hit penny bids and lift penny offers that you submit.
About Interactive Brokers
Interactive Brokers provides professional traders and investors with
direct access to options, futures, stocks, forex, and bonds on over 60
market centers worldwide from a single IB Universal Account. With
consolidated equity capital that exceeds US $2.5 billion, IBG executes in
excess of 500,000 trades/day and executes 22% of North American options*.
In 2006 Barron's awarded Interactive Brokers its top star ranking overall
and for lowest cost broker. For more information, please see the
Interactive Brokers Web site at
http://www.InteractiveBrokers.co.uk or call our local UK office 020 7 776 7801.
