May 31, 2006
SR-ISE-2006-26 Comment with comments also pointed at SR-ISE-2006-23
I am an active retail options trader who abides by all terms of a retail customer vs professional or Market makers. I trade my own money. I do not receive any special leverage...all trades are paid for in cash on settlement date. I execute all of my own orders, none of my orders are sent directly via computer without my intervention. I am not a broker dealer. All of these prior statements lead me to question these proposed rule changes. Why should I be treated differently than any other retail investor and why am I being charged exhorbitant cancellation fees by ISE (and all other options exchanges other than BSE for that matter)?
ISE seeks to put active traders in a separate category (professional account holders)...one that eliminates the marketplace advantages given to retail investors and uses the excuse that "because Public Customer Orders at the same price are executed in time priority, retail investors are prevented from fully benefiting from the priority advantage when professional account holders are afforded Public Customer Order Priority". I believe the main reason for this rule change proposal is that the market makers on ISE do not like the competition from active, and possibly intelligent, traders who may be taking trades away from the market makers on the exchange. I challenge ISE to go through my list of executed trades on the exchange and find instances where another public customer order was hurt by not having the priority advantage. In addition, changing the fees charged to us is not going to benefit or help Public Customer Order priority. In fact, active traders often add liquid ity to the market, which helps out all investors. When I place an order, whether I join the bid, increase the bid or take out an offer, someone else is benefitting. In the first case, there are more contracts on the bid for any seller, public or professional. If I increase the bid, and seller, public or professional, can get a better price if they choose to sell. In the last case, where I buy the offer, whomever is on the other side, public or professional, got their trade offer executed because of an active trader like myself. The more competition in the markets, the better it is for all.
What differentiates a trader like myself and a market maker is a couple of things (and probably a lot more that I haven't listed). I have to enter and cancel orders on my own, not via computer generation. If an underlying stock price moves, I may have to manually cancel my order as the option price is based on the underlying stock price. A market maker has computer generated volatility models and a formula that allows them to refresh their option price as soon a stock moves. Also, a market maker makes a 2 sided market (a bid and an ask). A retail trader can only beon one side of the market...I cannot be both bid and ask on ISE. Because of these, and many other differences, other active trader and I should not be subject to different rules as any other customer orders.
I strongly believe this rule change proposal, and any cancellation fee, is a direct attempt to limit the trading of traders like myself because we are strong competition to the market makers on ISE and they do not want any competion.