Montréal Exchange: New functionalities for the futures market

Montréal Exchange: New functionalities for the futures market: Implementation of user-defined strategies and inter-group strategies on SOLA®

 

11/05/2012

The Montréal Exchange (MX) announces new user-defined strategy and inter-group strategy functionalities for its futures market on SOLA. These functionalities will be implemented in the production environment on May 14, 2012.

User-Defined Strategies

MX will implement user-defined inter-group strategies (UDS) for the futures market, allowing approved participants to create customized futures and options on futures strategies and to expose them to the market. Implied pricing will be activated on inter-group strategies, allowing the interaction of the strategy order books and the order books for the strategy legs.

To create a UDS, the participant sends a message containing the parameters of the UDS to MX's trading system in any of the supported protocols (SAIL, FIX or STAMP). The UDS functionality will then validate the created strategy. If accepted, the new UDS will be broadcast to the market via HSVF (the MX data feed), similar to the broadcast of any instrument.

MX will determine the strategy types that will be accepted by the UDS functionality from time to time, notifying the market of the acceptance criteria as they are adapted to market needs. MX will initially go live with the acceptable strategy types listed below:

 

Strategy
Example
LGB vs. CGB
Buy LGBU11 and sell CGBU11
LGB vs. CGF
Buy LGBU11 and sell CGFU11
CGB vs. CGF
Buy CGBU11 and sell CGFU11
CGB Delta Trade
Buy CGBU11 and buy or sell OGB call or put
BAX Delta Trade
Buy BAXU11 and buy or sell OBX call or put

 

With the introduction of UDS, MX will also modify the Procedures for the Cancellation of Trades (the "Cancellation Procedures") as well as the Procedures Applicable to the Execution of Cross Transactions and the Execution of Prearranged Transactions (the "Cross Procedures"). In addition, the MX will introduce, Procedures Applicable to the Execution of Strategies Involving Futures and Options on Futures (the "Futures Strategies Procedures").

The Cancellation Procedures have been modified to establish the no cancel range for regular and implied inter-group strategies on futures and options on futures orders as the sum of the No Cancel Range increments of strategies' individual legs. The Cross Procedures have been modified to allow for cross and prearranged transactions for inter-group strategies on the futures market. The prescribed time delay for a cross or prearranged transaction on an inter-group strategy will be five (5) seconds, which is consistent with the delay applicable to orders on individual legs comprising the strategy (in most cases also five (5) seconds). The Futures Strategies Procedures outline different methods in which strategies can be created, dissemination of strategies to the markets and acceptable strategy types accepted by MX's trading engine.

These initiatives will provide market participants with a new price discovery mechanism and reduced execution risk for legging-in strategies, thereby enhancing services to futures trading customers.