Priority of complex orders vs. regular orders

Discussion in 'Options' started by LM3886, Dec 31, 2021.

  1. LM3886


    I'm curious what the priority is between the complex order book and the regular order book (single options). I.e., which order book is matched first for the following scenarios:

    i) when a complex order is received by the exchange, or
    ii) when a regular order is received by the exchange

    For i), I think the exchange will probably match the order with both books, but I'm not sure about which first (or if the order of matching matters). For ii), I'm not sure if the exchange will even match it with the complex order book, but I think it could result in price improvement of the regular order if it does. Appreciate any insights from experienced folks here.
  2. Robert Morse

    Robert Morse Sponsor

    Good morning LM3886- First let me point out that there are 16 option exchanges and not all have a COB. When you send you single leg order or spread, you either choose an exchange or use your broker’s smart route. With either choice, let assume your order ends up on one of those 16. Once there, your single leg order is placed on that order book. If you send a spread, it is placed on one of the COBs. The exchanges have a process in place to prevent trade throughs but those rules on spreads are hard to find. I can tell you that spreads orders are not tied to the single leg orders. They are separate. To make it worse, the NBBO you see that you are basing your value on, is often made of more than one exchange, not the exchange where you order was placed. I hope this answers your question.


  3. LM3886


    Thank you, Bob. I'm surprised to hear that spread orders and single leg orders are separate. If an incoming complex order can be broken down to marketable single leg orders, it will not even get filled that way?

    Happy new year!
    Last edited: Dec 31, 2021
  4. ET180


    I think your broker handles that. The reason that I say that is that I submit a lot of combo orders. Most of the time I notice that all legs of the order are assigned the same commission. However, sometimes, I see legs having different commissions. In the case where each leg has a different commission, I assume that the broker just split the order up and executed the legs individually. This likely happens because I tend to submit most of my orders as limit GTC after the market has closed. So by the time the market opens the next morning, my limit might actually be at or beyond the offer.
  5. rb7


    On some exchanges (like BOX), COB and single leg order book interact together. When this happens, the leg order book has priority (In fact, it's a bit more complicated than that!!).

    BOX calculates implied orders from the interaction of the COB and regular order book.
    LM3886 likes this.
  6. LM3886


    Looks like IB has a REL + MKT order type that tries to fill each leg with relative orders, but the web page is obscure about what the "trigger price" means. Has any one used this order type?