Interactive Brokers, the online broker located in Greenwich, Conn., began offering penny pricing in options today. IB cut the minimum price difference for U.S. listed options from a nickel to a penny.
The broker is jumping the gun ahead of the rest of the U.S. options industry, but not for long. The Securities and Exchange Commission (SEC) mandated a penny pilot program beginning on Jan. 27, 2007, the release noted. The six U.S.-based options exchanges will have to reduce the minimum price change from five cents to one cent for options listed on 13 underlying stocks.IB has developed a system to allow customers and liquidity providers to display penny prices in the IB system and 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 another participant sends an order that can be matched against another penny priced order, IB will attempt to execute the trade on a U.S. options exchange that has a penny auction mechanism, such as the Boston Options Exchange's Price Improvement Auction or the International Securities Exchanges'Price Improvement Mechanism.
On Oct. 12, NYSE Group announced that it had filed a proposal with the SEC to begin a six-month pilot program quoting options issues listed on the NYSE Arca Options platform in pennies as opposed to five cents for options series listed under $3.00. In addition, under the proposal, the NYSE will drop pricing on options contracts in the pilot program that are quoted at $3 or greater, from the current standard 10-cent increment to a nickel. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio