Friday, September 21, 2007

New Options Pricing

I just receiving the following information from Interactive Brokers.

On September 28, the number of US option classes trading in pennies will expand such that 35% of all US options volumes will be tradable in penny increments. An additional indicator of the rapidly changing structure of the US options market is that several option exchanges will be adopting the "make or take" model for exchange fees. In this model, non-marketable limit orders (makers) receive liquidity-adding credits from the exchange, while marketable orders (takers) are charged a transaction fee. The liquidity adding/liquidity removing market structure will be familiar to traders acting in US stocks since nearly all ECNs are organized this way.

In anticipation of the benefit and impact these changes will have on traders, IB will enhance its commission model to provide a fully transparent unbundled pricing structure. Unbundled pricing will allow traders to employ quoting strategies where they can actually receive a rebate from the exchange for improving liquidity.

Effective October 1, 2007, all US option commissions will include external exchange fees if any. IB will reduce its first tier commission from $0.75 to $0.70, while the top tier will remain $0.15 at the highest volumes and we will pass on rebates, as well as costs, where they exist, to our customers. It should be noted that for the majority of US exchanges there is no cost for stock options execution. For a complete listing of US option commissions and exchange fees, click here.