“Fail early, fail often, but always fail forward.”
John C. Maxwell
Occasionally, Alphacution gets calls from the market players that we write about. This is welcomed and encouraged…
As much as I enjoy the writing aspect of this process, we aren’t doing journalism here. We don’t reach out to market participants for comment. Given the proprietary nature of most of our research topics, it’s not efficient to seek input from insiders. It’s extremely rare that anyone wants to talk for fear of providing us with clues…
As most of you know, Alphacution harvests intelligence from publicly-available data. Like all data, sometimes this source data is illusory, and therefore, can lead to misinterpretations. However, the more we learn, the more we are able to minimize misinterpretations or – at least – assemble ammunition to repair the record…
Given the subject matter, this “fail early, fail often” type of research process turns out to be the most efficient strategy for providing intelligence on such a secretive space…
Anyway, this is one of those times when we need to repair and improve the record: In the recent Feed post, “Public.com Enters Option Fray, With A Twist,” the newness of Open to the Public, Inc‘s (aka – OTTP or Public.com) Form 606 reporting on options trading in December 2023 led to Alphacution’s unavoidable misinterpretation of the company’s emerging strategy for retail option trading…
Public.com’s senior management reached out, and here are some highlights from what we learned:
- Public.com’s option trading functionality was launched for customers on January 22, 2024. The option transaction data for December 2023 contained in the company’s Q4 2023 606 report was based on the company’s own testing of this new functionality. It did not reflect customer transactions nor full operational capabilities…
- The fact that this testing contained only “market orders” and “other orders” does not mean that customer functionality is precluded from using limit orders. As of launch, Public.com does allow limit orders in options. Therefore, we will not see the first examples of their actual option order type distribution until the Q1 2024 606 report is published, around the end of April 2024.
- When Public.com was very small, it relied on the 606 reporting from its clearing broker, APEX Clearing. This is true of other small retail trading platforms that trade through APEX. There are several, which are believed – currently or historically – to include the likes of M1 Finance, Tradier, eToro USA Securities, and Moomoo – among others. In February 2021 – after sufficient growth – Public.com repopulated its 606 reporting to reflect a more complete – and independent – record of its order routing history…
- Public.com has branded itself as the “PFOF-free” alternative to most other retail brokerage platforms. For equities, all orders are currently routed through Instinet. PFOF-free option trading is a bit more challenging, given the greater need for market maker liquidity incentives. So, for options, APEX apparently has negotiated a flat contract rate card of about $0.45/contract. APEX keeps 20% of this rate, sends 80% to OTTP ($0.36), who then splits that residual 50/50 with customers ($0.18), or at least those customers who activate this functionality by March 31, 2024. On its website, OTTP seems to use the term “rebate” to obfuscate the fact that this is still PFOF. This “rebate” is not to be confused with exchange rebates…
Until next time…
