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«Turquoise Derivatives SAIL Business Design Guide ISSUE 2.0 · DECEMBER 3rd 2012 Use of This Documentation This document is the property of London ...»

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TQD300 · TECHNICAL SPECIFICATION

Turquoise Derivatives

SAIL Business Design Guide

ISSUE 2.0 · DECEMBER 3rd 2012

Use of This Documentation

This document is the property of London Stock Exchange Group (LSEG) and neither

the document nor its contents may be disclosed to a third party, nor may it be copied,

without prior written consent from LSEG.

Every effort has been made to ensure that the information in this guide is correct at the time of publication but LSEG does not accept liability for any error or omission. The development of its products and services is continuous and published information may not be up to date. It is important to check the current position with LSEG. This guide may be amended and reissued from time to time.

LSEG accepts no liability for decisions taken, or systems or other work carried out by any party, based on this document. LSEG shall not be liable for any claims or losses of any nature arising directly or indirectly from use of the data or material contained within this document (except to the extent required by law).

© August 2012 London Stock Exchange Group 10 Paternoster Square, London EC4M 7LS Telephone +44 (0)20 7797 1000 www.londonstockexchange.com Contents 1 Introduction

1.1 Purpose

1.2 Readership

1.3 Revision History

2 Service Description

2.1 Market Model

Options

2.1.1 Anonymity

2.1.1.1 Market Quality

2.1.1.2 Futures

2.1.2 The Order Book

2.1.2.1 Order Priorities

2.1.2.2 Price Levels

2.1.2.3 Request for Quote (RFQ)

2.1.2.4 Strategies

2.1.3 Strategy Instrument

2.1.3.1 Strategy-Strategy Trade and Leg Execution Notifications

2.1.3.2 Implied Trades and Leg Execution Notifications

2.1.3.3 Order Priority within a given Strategy Book

2.1.3.4 Order Priority across several Strategy books sharing the same underlying leg. 11 2.1.3.5 User Defined Strategy (Flexco)

2.1.3.6 Circuit Breaker

2.1.4 Instrument Limit Price (X Validation)

2.1.4.1 Trade Price Vs Control Price (Y Validation)

2.1.4.2 Trade Price Vs Last (Z Validation)

2.1.4.3

2.2 Description of Trading Phases

Consultation Start

2.2.1 Order Cancellation

2.2.2 Pre-opening

2.2.3 Opening

2.2.4 Trading Session (Continuous Trading)

2.2.5 Closing (Not Implemented for IDEM Market)

2.2.6 Exchange Intervention

2.2.7 Consultation End

2.2.8 Mini Batch

2.2.9 Post-session

2.2.10 Forbidden

2.2.11 Interrupted

2.2.12

2.3 Instrument Groups

Group State Change Notifications

2.3.1 Instruments State Change Notifications

2.3.2

2.4 Behaviour of an Instrument Independently of its Group

Reservation, Opening of an Instrument

2.4.1 Order Cancellation

2.4.2 Trading Session

2.4.3

2.5 Behaviour of a Strategy Instrument Dependent on its Legs

3 Connection Management

3.1 Connection Types

3.2 Connection Implementation

3.3 Message Sequencing

User Sequence ID

3.3.1 Exchange Sequence ID

3.3.2

3.4 User Connection and Disconnection

First Time User Connection (TC)

3.4.1 Message Retransmission

3.4.2 Retransmission of all messages for a session

3.4.2.1 Retransmission from a specific message for a session

3.4.2.2 Disconnection Instruction Management

3.4.3 User Disconnection by Exchange: Heartbeat Missing

3.4.4 User Disconnection by Client

3.4.5

3.5 Error Management

Incorrect Incoming Message

3.5.1 Out of Sequence

3.5.2 End of Transmission

3.5.3 4 Order Management

4.1 Order Entry

Order Types

4.1.1 Limit Orders

4.1.1.1 Top Order

4.1.1.2 Market Order

4.1.1.3 Committed Order

4.1.1.4 Two Sided Order (Message Type OX) or Cross Order

4.1.1.5 Cross/Committed orders (including Block) on strategies

4.1.1.6 Price Terms

4.1.2 Stop and If Touched

4.1.2.1 Quantity Terms

4.1.3 Minimum Quantity

4.1.3.1 Disclosed Quantity (Iceberg order)

4.1.3.2 Order Duration Types

4.1.4 Day

4.1.4.1 Good Till Day (GTD)

4.1.4.2 Good Till Cancelled (GTC)

4.1.4.3 Immediate Orders (FAK)

4.1.4.4 While Connected Orders

4.1.4.5 General Processing (Buy or Sell Order)

4.1.5

4.2 Order Modification

4.3 Order Cancellation

4.4 Unsolicited Services

Entry or Cancellation of an Order by the Exchange

4.4.1 Elimination of an Order

4.4.2 Cancellation of a Trade by the Exchange

4.4.3 5 Quote Management

5.1 Bulk Quote Data

5.2 Entry of a Bulk Quote

5.3 Entry of a Global Cancellation

5.4 Entry of a Request for Quote

5.5 Market Maker Monitoring

5.6 Market Maker Protection

Protection Counters

5.6.1 Counter Reset

5.6.2 Triggered Market Maker Protection

5.6.3 Standard Market Maker Protection

5.6.3.1 Advanced Market Maker Protection

5.6.3.2 6 APPENDIX - SAIL Message Flow





6.1 General Messages

6.2 Order Processing

6.3 Modification Processing

6.4 Quote Processing

6.5 Cancellation Processing

6.6 Trade Messages

6.7 Market Maker Messages

Market Maker Monitoring - Invalid Bulk Quote Grace Period Elapsed:................. 57 6.7.1

6.8 User Defined Strategy (Flexco)

1 Introduction

1.1 Purpose The purpose of this publication is to provide customers with the knowledge and technical details necessary for accessing and using the SOLA trading system.

This SAIL Business Design Guide provides essential information for participants and independent software vendors in the functional design of their application in order to interface with SOLA using the native SOLA Access Information Language (SAIL) protocol.

1.2 Readership The target audience for these publications is anyone working at either the business or Information Technology (IT) level of an organisation interested in the functional design of the SOLA trading system.

1.3 Revision History

This document has been through the following iterations:

–  –  –

2 Service Description

2.1 Market Model 2.1.1 Options 2.1.1.1 Anonymity Orders on the SOLA trading system are anonymous: during trading sessions perfect anonymity is provided and market participants cannot see who is in the marketplace: only the five best bids and asks including their respective quantities are broadcast. Any market participants who enter orders remain anonymous. Once a trade is executed, participants will not see the opposite counterparty on the trade.

2.1.1.2 Market Quality

To create a deeper more liquid market with tighter pricing, the Exchange has adopted a market model which increases transparency, facilitates access, lowers the barriers to entry and facilitates competition. A strict price/time priority algorithm for order matching: FIFO (First-in; First-out) is employed to help achieve this.

2.1.2 Futures 2.1.2.1 The Order Book SOLA broadcasts market information on the five best limit prices on both sides in the order book, the number of orders at each price on the bid and on the ask as well as the cumulative quantity available at each limit price. This information displayed by the order book can be seen on any terminal, and is anonymous.

2.1.2.2 Order Priorities

During the course of the trading day, priority is set first by price, then by time stamp. At the same price, priority is given to the first order that has been sent, in other words, on a first-in, first-out (FIFO) basis. Note that the limit orders produced by triggered stop orders are timestamped from the moment the stop was triggered, not from the time the stop order was sent to the market.

2.1.2.3 Price Levels

Orders, on some instruments, must be entered within certain price levels in order to avoid costly typing errors on the part of participants and to ensure the market's integrity by limiting excessive price fluctuations. These price levels are determined and updated by the Exchange during the course of the trading day. They are different from the daily price limits set by the Exchange, which halt trading when reached. No buy order can be sent in with a limit price above the upper price level. Similarly, no sell order can be sent in with a limit price below the lower price level. They are often referred to as minimum and maximum price levels.

2.1.2.4 Request for Quote (RFQ)

In certain scenarios the Exchange may decide to allow participants to utilize the Request for Quote (RFQ) functionality. RFQs allow participants to ask for a market for a given quantity of a specific instrument. This informs other participants of the interest in that instrument, allowing them to respond accordingly. Sending an RFQ does not require that a subsequent order be sent into the market. In any case, participants are not required to respond to an RFQ unless they are market makers who must respond as per their overall obligations to the market.

2.1.3 Strategies 2.1.3.1 Strategy Instrument A strategy is viewed as a single instrument in SOLA, and strategies are quoted with a bid and an ask. A strategy instrument can be bought or sold like any other instrument. A strategy order can either trade against an opposite strategy order (in same instrument book) or against several leg orders (implied trade). Only strategy instruments which are system configured “implied enabled” can trade in implied mode.

2.1.3.2 Strategy-Strategy Trade and Leg Execution Notifications

A strategy order for which the strategy type is not “implied enabled” can only trade against an opposite order/quote on the same strategy instrument. The SOLA Trading System matches the buy and sell orders at the price defined by the market (ask/bid) at the time of order entry.

SOLA also calculates the trade price of each leg of the strategy and disseminates them in real-time to the parties involved in the trade and to the rest of the market. The leg prices are the price at which the legs are to be cleared. Since a strategy-strategy trade does not lift any leg orders/quotes, the leg notifications are merely “volume adjustment trades” and do not affect the last trade price and high/low statistics of the leg instruments.

Example of Strategy-Strategy Trade Market is as follows on the September, June and September-June spread.

–  –  –

A buy order 0.10 on the spread book will trade against the ask at 0.09. The system will generate prices on each leg, say 104.58 for the September contract and the 104.49 for the June contract (giving a price differential of 104.58 – 104.49 = 0.09) 2.1.3.3 Implied Trades and Leg Execution Notifications Implied-In (not implemented for IDEM market) “Implied "in" orders are derived from regular posted orders on individual legs. Implied "in" orders allow to create a synthetic strategy market available for trading to all market participants.

An incoming order on a strategy instrument (which supports implied trading) may negotiate against an implied-in order, generated by outright orders from the leg markets. In case of an implied trade, SOLA also disseminates the leg prices in real- time to the party who submitted the strategy order. Note that these prices are not calculated but are the prices at which the outright (leg) orders traded. Since an implied-in trade lifts orders/quotes from the outright markets, statistics such as last trade price, traded volume and high/low prices for each of the leg instruments are affected.

Example of Implied-In Trade Market as follows on the September, June and September-June spread.

–  –  –

The implied ask on the September-June spread book, generated by the outright ask on the September book and the outright bid on the June book, is 0.11 (i.e. 104.58 - 104.47). The implied ask of 0.11 is better than the real ask of 0.12 on the September- June spread book.

Therefore an incoming order to buy the September-June spread at 0.12 will trade against the implied ask of 0.11 and therefore generate trades against the September sell order(s) at

104.58 and the June buy order(s) at 104.47.

Leg notifications are sent to the submitting strategy participant at 104.58 for the September leg and 104.47 for the June leg.

Similarly, the implied bid on the September-June spread is generated by the outright bid of the September contract and the outright ask on the June contract at a price of 104.55 – 104.51 = 0.04. In the above example, the real bid (0.05) of the September-June spread is better than the implied bid (0.04). Therefore an order to sell the September-June spread at a price of 0.04 will trade against the bid of 0.05 in the spread book.

Implied-Out

“Implied Out” orders for a given leg instrument are derived from a combination of an existing regular strategy order(s) and existing outright order(s) in the other underlying individual legs. This type of order allows creating a synthetic market on the given underlying leg.

Example of Implied-Out Trade Market as follows on the September, June and September-June spread.

–  –  –

The implied bid on the June contract is generated by the bid of the September contract and the ask of the September-June spread at a price of 104.55 – 0.11 = 104.44. An implied bid of

104.44 is better than the real bid of 104.43 in the June book. A sell order on the June contract at a price of 104.43 will hit the implied bid at 104.44 and generate trades with the buy order(s) on the September book at 104.55 and the sell order(s) on the September-June spread book at a price of 0.11. Real-time leg execution notices will be sent for the strategy order, at a price of

104.55 for the September leg and a price of 104.44 for the June contract.



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