Considerations for Optimizing Order Efficiency
Account holders are encouraged to routinely monitor their order submissions with the objective of optimizing efficiency and minimizing 'wasted' or non-executed orders. As inefficient orders have the potential to consume a disproportionate amount of system resources. IB measures the effectiveness of client orders through the Order Efficiency Ratio (OER). This ratio compares aggregate daily order activity relative to that portion of activity which results in an execution and is determined as follows:
OER = (Order Submissions + Order Revisions + Order Cancellations) / (Executed Orders + 1)
Outlined below is a list of considerations which can assist with optimizing (reducing) one's OER:
1. Cancellation of Day Orders - strategies which use 'Day' as the Time in Force setting and are restricted to Regular Trading Hours should not initiate order cancellations after 16:00 ET, but rather rely upon IB processes which automatically act to cancel such orders. While the client initiated cancellation request which serve to increase the OER, IB's cancellation will not.
2. Modification vs. Cancellation - logic which acts to cancel and subsequently replace orders should be substituted with logic which simply modifies the existing orders. This will serve to reduce the process from two order actions to a single order action, thereby improving the OER.
3. Conditional Orders - when utilizing strategies which involve the pricing of one product relative to another, consideration should be given to minimizing unnecessary price and quantity order modifications. As an example, an order modification based upon a price change should only be triggered if the prior price is no longer competitive and the new suggested price is competitive.
4. Meaningful Revisions – logic which serves to modify existing orders without substantially increasing the likelihood of the modified order interacting with the NBBO should be avoided. An example of this would be the modification of a buy order from $30.50 to $30.55 on a stock having a bid-ask of $31.25 - $31.26.
5. RTH Orders – logic which modifies orders set to execute solely during Regular Trading Hours based upon price changes taking place outside those hours should be optimized to only make such modifications during or just prior to the time at which the orders are activated.
6. Order Stacking - Any strategy that incorporates and transmits the stacking of orders on the same side of a particular underlying should minimize transmitting those that are not immediately marketable until the orders which have a greater likelihood of interacting with the NBBO have executed.
7. Use of IB Order Types - as the revision logic embedded within IB-supported order types is not considered an order action for the purposes of the OER, consideration should be given to using IB order types, whenever practical, as opposed to replicating such logic within the client order management logic. Logic which is commonly initiated by clients and whose behavior can be readily replicated by IB order types include: the dynamic management of orders expressed in terms of an options implied volatility (Volatility Orders), orders to set a stop price at a fixed amount relative to the market price (Trailing Stop Orders), and orders designed to automatically maintain a limit price relative to the NBBO (Pegged-to-Market Orders).
The above is not intended to be an exhaustive list of steps for optimizing one's orders but rather those which address the most frequently observed inefficiencies in client order management logic, are relatively simple to implement and which provide the opportunity for substantive and enduring improvements. For further information or questions, please contact the Customer Service Technical Assistance Center.
Order Management Overview
BACKGROUND
IB’s order management and routing systems are negatively impacted when the volume of orders submitted by clients is significant relative to those which are actually executed. Left unchecked, unproductive orders have the potential to slow system performance, adversely impact other clients and increase capacity requirements and costs. To minimize the load of such orders on internal systems and to comply with exchange policies, certain of which impose a surcharge for excessive messages, IB monitors order activity and may place restrictions upon clients who routinely submit a disproportionate number of unproductive orders.
MEASUREMENT & REPORTING
The Order Efficiency Ratio (OER) allows IB to evaluate order productivity by comparing aggregate daily order activity relative to that portion of activity which results in an execution. This ratio is as follows:
OER = (Order Submissions + Order Revisions + Order Cancellations) / (Executed Orders + 1)
An OER above 20 is generally considered excessive and indicative of inefficient order management logic. Clients who routinely report an OER above 20 will receive notification of their ratio and are advised to review and optimize their logic and those who fail to take action or who report a particularly egregious ratio may be subject to trade restrictions or bandwidth usage fees.1
TAKING CORRECTIVE ACTION
Clients submitting orders through an API can often realize significant declines in their OER through slight modifications to their order logic. Please review KB1765 for a list of the most common techniques for optimizing this ratio.
1 It should be noted that these actions are not aimed at the client who submits 200 orders and receives 10 executions but rather those using automated systems to submit thousands of orders with negligible interaction with the NBBO.
Security considerations following SLS opt out
Account holders who have elected to opt out of IB's Secure Login System (SLS), and effectively relinquish the protections afforded by two factor authentication, are strongly encouraged to familiarize themselves with and utilize alternative best practice security measures, a number of which are discussed below.
It's imporatnt to note that while none of these measures, on either an individual or collective basis, is deemed equivalent to the SLS in terms of protection and, in fact, are recommended as complementary measures, opting out of SLS serves to increase their relevance.
IP Restrictions:
One way to add protection or a level of security to your IB Trading account while not utilizing a Secure Login Device would be to setup IP restrictions. By selecting this setting through Account Management you're telling Interactive Brokers that you only want access to your trading account(s) from a specified IP address, or a range of IP addresses. In addition, should you have multiple authorized traders for a given account, these restrictions can be set at the individual trader level.
To implement IP restrictions you will need to log into Account Management using your security device and click on the Account Administration and then IP Restrictions menu options which will take you to the "Manage IP Address Restrictions" screen. From there click on the Add IP Address Restriction link, select the trader user name from the drop-down list, enter the IP address from which you connect (xx.xx.xx.xx.xx.xx) and click on the Submit button. Note that any updates do not take effect immediately but rather the following business day.
To find the IP address of your PC please follow the below steps. (Please note that the below will only give you the local PC address. If you are using any type of router in your home network please make sure you use your WAN IP address. Any IP address that starts with 192.XXX.XXX.XXX is most likely your LAN IP, and not your WAN IP. You can find your WAN IP by calling your ISP and asking them for it.)
- Click on the Start button in the lower left hand corner f your screen;
- Click on Run;
- Type “cmd” in the Run box and then click enter on your keyboard. An MS DOS Window will open
- Type “ipconfig” into the MS DOS Window and then click enter on your keyboard. Your IP address will be displayed.
Important Notes:
The IP restriction feature is only intended where the IP address is static, or remains constant. In certain instances your computer’s IP address may be assigned automatically and in a dynamic or changing manner by your network administrator or Internet Service Provider. IB recommends that you confirm that your address is static prior to using this restriction feature.
While the use of the IP restriction feature will restrict access to the IP address(es) you specify, you must be aware it isn't 100% full proof against very advanced electronic thieves who know how to spoof, and or mask an IP Address. it should be noted that this feature alone will not necessarily prevent unauthorized access by any hacker having your user name and password along with the ability to ‘spoof’ your IP address.
Securing Your Network:
- Use a firewall making sure ports 4000 and 4001 are open for TWS access.
- Never use a wireless session (WI-FI) which is unsecured or not operated by you. If the use of a unsecured network (e.g. public Wi-Fi hotspot) becomes necessary, do not log into any financial institution account you may have including your IB account.
- When logging into the TWS, check the “Use SSL” box on the login screen. By using SSL, or Secure Socket Layer, all information passed to and from your computer is protected using 128-bit encryption. Note, however, that checking this box may cause you to experience minor performance impacts depending on the capabilities of your PC.
- Use antivirus software to identify and eliminate viruses you may have downloaded to your computer accidentally. As new viruses are constantly being created, you need to update your antivirus software regularly.
- Use anti-spyware software to detect and remove spyware programs which can collect various types of personal information, monitor your browsing activity and interfere with the control of your computer.
If you have any other questions please feel free to contact IB's Technical Support center.
OPTION SYMBOLOGY INITIATIVE
INTRODUCTION
Beginning in 2006, working groups comprised of brokers, exchanges, clearing houses and vendors were formed in order to represent each of the U.S. and Canadian securities industries in a multi-year effort to develop a revised data format for representing listed option symbols. These efforts, referred to as the Option Symbology Initiatives (OSIs), are intended to provide the following benefits:
- Decrease the number of errors in the front, middle and back office processes.
- Represent the vast majority of listed option contracts using the same symbol as the
underlying security to reduce investor confusion.
- Reduce corporate action symbol conversions.
- Eliminate wrap symbols.
- Eliminate the need for LEAP rollover process.
- Reduce the frequency of coordination among exchanges for symbol elections.
- Support the growth in product listings through additional expiration events and more
flexible strike price designations.
The following article provides background information regarding the products impacted by the OSI, the revised data format, project timeline and client impact as well as external links where additional information may be found.
PRODUCTS IMPACTED
The table below lists the product classifications of the US and Canadian exchange listed options which are impacted by the OSIs. Note that while the mandated conversion date for Canadian options is identical to that of the US (i.e., February 12, 2010), the conversion of Canadian options was accelerated and completed by IB in September 2009.
|
US
|
Canadian
|
|
Equity
|
Equity (short cycle, regular full cycle and long term)
|
|
Index
|
Index
|
|
Yield Based
|
Foreign Currency
|
|
Short Dated
|
|
|
Flex
|
|
OSI DATA FORMAT
Each OSI will replace the 5-character code with a 21-character OSI identifier to be used in the transmission of listed option contracts between exchanges, the clearinghouses and their constituents. The 21-character OSI identifier comprises six data elements arranged in logical order, each with a minimum field size. An example is provided in the table below.
|
5-character Code
|
21-character OSI Identifier*
|
OSI Data Elements (minimum field size)
|
||||||
|
Option Root
Symbol [6]* |
Yr
[2] |
Mo
[2] |
Day
[2] |
C/P
[1] |
Dollar
Strike [5] |
Decimal
Strike [3] |
||
|
SZVXI
|
SPX 111216P01900000
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SPX
|
11
|
12
|
16
|
P
|
01900
|
000
|
|
WMFAW
|
MSFT 100116C00047500
|
MSFT
|
10
|
01
|
16
|
C
|
00047
|
500
|
*If the Option Root Symbol is less than 6 characters, spaces are added to equal the six character minimum.
OSI TIMELINE & CLIENT IMPACT
The industry effort has been organized into two phases:
1. The Conversion Phase in which the OPRA code format will be dropped and the 21-character record layout employed to include the expiration day and decimal strike price. This phase was completed on February 12, 2010; and
2. The Consolidation Phase during which LEAPS, wrap, FLEX, short-dated and non-standard delivery contracts will have their symbols consolidated to that of the underlying (e.g. MSQ to MSFT). This phase will take place over the 5 weekends starting March 12, 2010 and ending May 14, 2010. Note that there are certain contracts, referred to by OCC Class Consolidation Exceptions, which will not be consolidated. These contracts include binary and CDO options, options having a 5 character underlying as well as options having unique settlement terms (e.g., settle on open). In addition, adjusted symbols which are the result of a prior corporate action will be consolidated to the new OSI corporate action format at the time the underlying class consolidates.
Outlined in the table below are the key milestone and effective dates for this consolidation phase and the products impacted.
| Milestone Date | Action | Issues/Series Impacted | Effective Date |
| Friday, March 12, 2010 | Initial group of options representing array of product scenarios to be consolidated (approx 12 classes) | Options associated with a strategic group of underlyings including adjusted and non-standard symbols | Monday, March 15, 2010 |
| Saturday, March 20, 2010 | Standard Expiration | ||
| Wednesday, March 31, 2010 | Quarterly Expiration | ||
| Friday, April 9, 2010 | Consolidation of options whose primary underlying starts with the letters A-C (approx 503 classes) | All options associated with 'A-C' underlyings including adjusted and non-standard symbols | Monday, April 12, 2010 |
| Saturday, April 17, 2010 | Standard Expiration | ||
| Friday, April 23, 2010 | Consolidation of options whose primary underlying starts with the letters D-I (approx 486 classes) | All options associated with 'D-I' underlyings including adjusted and non-standard symbols | Monday, April 26, 2010 |
| Friday, May 7, 2010 | Consolidation of options whose primary underlying starts with the letters J-IR(approx 575 classes) | All options associated with 'J-R' underlyings including adjusted and non-standard symbols | Monday, May 10, 2010 |
| Friday, May 14, 2010 | Consolidation of options whose primary underlying starts with the letters S-Z (approx 503 classes) | All options associated with 'S-Z' underlyings including adjusted and non-standard symbols | Monday, May 17, 2010 |
IMPORTANT NOTE:
During this consolidation phase Good-till-Canceled (GTC) and Good-till-Date (GTD) orders will need to be canceled for all the option classes which are scheduled to consolidate. To accommodate this exchange mandate, IB will cancel all customer GTC and GTD orders on the Sunday of each milestone cycle. Confirmation of these cancellations (outs) will be provided prior to effective date open (Monday) at which point customers may re-enter these orders utilizing the post consolidation symbol.
EXTERNAL LINKS
For additional information, please visit the symbology initiative sections of the OCC and Montreal Exchange websites.
