Order Book Official
What Is an Order Book Official?
An order book official (OBO) is the trading floor participant responsible for keeping a rundown of public market or limit orders of a specific option class utilizing the "market-marker" system of executing orders. The purpose is to keep a fair and orderly market in the assigned options, incorporating executing orders sent in by member firms.
As physical trading floors progressively give way to electronic markets and screens-based trading, the job of the OBO has enormously reduced. Today, most order books are kept up with by calculations or software developed by exchanges or trading platforms.
What the Order Book Official Does
Order book officials are employees of the exchange and can't trade for their own accounts. Their sole responsibility is to keep up with the market for their assigned listed options, including executing orders staying on the book.
This contrasts from a designated market maker (DMM), formerly known as a specialist on the NYSE or different exchanges, who as members of the exchange must trade their own account notwithstanding the OBO elements of keeping a fair and orderly market and executing orders on the book.
The OBO is likewise responsible for keeping a book of limit and stop orders left for him/her by the public. Members may not leave such orders. At the point when the order's specific conditions are met, that order is then executed.
The term is some of the time utilized in reference to a current rundown of public market or limit orders for a given exchange. For instance, a rundown of specific public orders anticipating execution on the Chicago Board Options Exchange (CBOE) could be alluded to as the "order book official".
Order Book Official and Market Makers
Trading on an options exchange incorporates a wide range of capabilities. Dissimilar to different exchanges, similar to a stock exchange, the CBOE isolates the designated market maker (specialist) job into two separate capabilities. A market maker, who acts as a dealer with his/her own inventory, and an order book official, who handles the book of customer limit orders.
Market makers (MMs) post and keep up with continuous two-sided markets, i.e., bids and offers, for a given options contract and trade for their own accounts. MMs additionally can't deal straightforwardly with the public, and must trust that orders will come into the floor by means of broker or exchange official.
The order book official monitors these orders for an assigned group of options and ensures the market stays liquid and fair. OBOs may not act as dealers and don't hold inventory. A floor broker is a middleman acting as an agent for clients, in a roundabout way giving them the best access conceivable to the exchange floor. The floor broker doesn't hold inventory.
Public orders take priority over orders from market makers and floor brokers.
Illustration of What an Order Book Official Does
Today, most orders are submitted electronically to an exchange. The order book official screens the orders and executes trades as the order specifications are reached. This too is essentially totally done electronically.
Accept an investor needs to buy an option contract in Apple Inc. (AAPL). They pick their expiry date and strike price. Expect AAPL stock is trading at $220, and the investor needs a call option that terminates in 2.5 months with a strike price of $220. The current bid for the option is $10.65 while the current offer is $11.10.
The investor would rather not pay that much, so they place an order to buy at $10.25. This will go on the order book as a limit order. It will be executed assuming somebody will sell to the investor's buy order at $10.25.
Features
- OBOs have been progressively replaced by electronic order books, organized by calculations on screens-based trading platforms.
- Dissimilar to market makers, the OBO doesn't trade their own account, yet they might execute public orders for customers.
- An order book official is an exchange employee that keeps up with the rundown of public orders for a specific security or options class.
