Smart (?) order routing

[Marco 221]

I know some members have described that behavior before and in fact recommended the methodology for better fills. I use it regularly but I'm unsure about why this actually works. Maybe someone can educate me:

 

I have a multi leg order in the system (IB). This example was the AMZN double calendar. My oder is for the 4 legged combo. I also watch the 2 calendars separately.

So my offer is at 2.65 and I see the sum of the 2 mids of the 2 calendars is 2.70 so I change my order to 2.66 offer and immediately get filled. This happens often when I change my order to a much higher offer and then back to the same level (or as in this case even a tick higher)  

 

Now I realize that at the time of the fill, or while my offer was resting in the order book, there was no executable bid at my limit so the smart order routing couldn't fill me anywhere but when I change and re-enter the order it is clearly visible to a market maker who is happy to fill me at that offer that didn't see the order before.

Can't they see the offer on all exchanges all the time? Why does this happen?

 

thanks,

m. 

[K. Miller 3]

You might want to edit the title of the thread, so we do not wonder if your marketing for Dior

 

On the other hand, your question is very interesting.  I saw on amazon there where several times a "last" trade combo that would have met my price, but no fill on my end.  This could be a volume issue of course, but it happened more than once, making me wonder if we are doing the best using "smart" routing, as options guru Augen speculates against.

[Kim 7,512]

You might want to edit the title of the thread, so we do not wonder if your marketing for Dior

 

On the other hand, your question is very interesting.  I saw on amazon there where several times a "last" trade combo that would have met my price, but no fill on my end.  This could be a volume issue of course, but it happened more than once, making me wonder if we are doing the best using "smart" routing, as options guru Augen speculates against.

Well, last fill for separate legs might not be from the combo order, but fills from different times, so this is not an issue.

 

The issue that Marco described happened to me more than once, I don't think it is related to the Smart routing.

[Marco 221]

Well I also asked IB on that issue. Their answer below. Looks like depending on the combo order and whether it is supported by the exchange(s) and other factors that they haven't elaborated on, the order either (only) rests in IB's internal order book or on the exchange. Re-entering/changing the order might change that and that might trigger an execution. Still find that odd.

 

--- --- -- ---

 

Dear Mr. ....

 

Combo orders, depending on how they are handled, may be reflected differently in the IB trading software. When combo orders are submitted, they are done so in one of two different ways:
-smart routed (may be held internally and legged into when the order becomes marketable or may be directly routed to an exchange as a spread order)
-directed (will be directly routed to the specified exchange)

Smart routed combos may be held internally and not routed to an exchange. This may occur because either:
-the order is not marketable
-the order is not accepted natively on an exchange and is therefore being held by IB and attempts will be made to simultaneously send orders for each of the legs to obtain the combo (spread) execution.

Proprietary algorithms are used to determine whether a submitted combo order is sent natively to an exchange or is held internally and we attempt to leg into it. Combo quotes being natively disseminated by exchanges will be shown in standard color formats (i.e. green, red, yellow). Simulated quotes (an approximation based on the market data being displayed for the specific securities defined in a combo) are displayed with a purple color. Based on routing decisions that are made systematically, submitted combo orders may or may not be displayed in the market quote seen on the trading software.

The previously referenced proprietary routing algorithm makes it's decisions based on a number of varying factors.

 

Additional information regarding this can be found on the following page;
www.interactivebrokers.com/en/general/education/pdfnotes/PDF-ComboSpread.php?ib_entity=llc