IEX FIX Certification Notes for Product Managers

Transcription

1 IEX FIX Certification Notes for Product Managers Version: 1.01 Updated: October 3, 01 IEX Group, Inc. 7 World Trade Center 30th Floor New York, NY Copyright 01 IEX Group, Inc. All rights reserved. This document may not be modified, reproduced, or redistributed without the written permission of IEX Group, Inc.

2 Unique Features of the IEX Market Model 1. Price / Display / Broker / Time Priority Among displayed and non-displayed orders at the best price, a broker s own orders will have precedence to trade with that broker s active order checking the IEX Book. Among a broker s own orders at the best price, Agency orders will have precedence over Principal orders. 1 Inside market at IEX is $.09 $.11 3 Book Priority Example Broker Z sends a SELL order of 00 shares to rest at a limit of $.11 at IEX, joining the offer at an inferior time priority to older resting orders in the queue. Order is flagged by Broker Z as Principal. Broker Z sends a SELL order of 500 shares to rest at a limit of $.11 at IEX. Order is flagged by Broker Z as Agency. Broker Z sends an IOC BUY order for 700 shares at the market. 5 IOC BUY order bypasses the oldest resting orders in the queue, to execute against 500 shares of Broker Z s resting Agency $.11 The remaining 00 share quantity of the IOC BUY order bypasses the oldest resting orders in the queue to execute against 00 shares of Broker Z s resting Principal $.11 Result: Broker Z s active order is able to execute against its own resting orders despite its resting orders occupying an inferior time priority in the order book queue. Although the resting Agency order was entered after the earlier resting Principal order, priority was assigned to the Agency order until the full Agency order quantity was filled.. Midpoint Price Constraint Non-displayed orders or non-displayed portions of reserve orders rest on the IEX Book no more aggressively than the midpoint of the NBBO, though they may express their full limit price when actively taking liquidity. 1 NBBO is $.07 $.10 Midpoint Price Constraint Example: Midpoint Constraint IEX receives a non-routable, non-displayed limit BUY order for 1,900 shares w/ $.10, the midpoint $ NBBO moves to $.08 x $.10 IEX updates non-routable, non-displayed BUY order for 1,900 shares to order limit of $.09 5 IEX receives an IOC SELL order at the market for 900 shares. IEX Group, Inc. Page of 8

3 Midpoint Price Constraint Example: Midpoint Constraint An execution for 900 shares $.09 The non-routable, non-displayed BUY order receives a partial fill of 900, with 1,000 shares remaining unfilled. Result: The non-routable, non-displayed BUY order is adjusted to the midpoint of the NBBO. The original limit will always be respected. An inbound SELL order that attempts to cross the spread executes against the resting BUY order at the midpoint; both buyer and seller are price improved over the max/min price they are willing to trade. 1 NBBO is $.07 $.10 Midpoint Price Constraint Example: Full Limit Expression IEX receives a non-routable, non-displayed limit BUY order for 1,000 shares w/ $.10, the midpoint $ IEX updates non-routable, non-displayed SELL order for 500 shares to order limit of $.09 An execution for 500 shares $.09 The non-routable, non-displayed BUY order receives a partial fill of $.09, with 1,000 shares remaining unfilled priced at the $.085 midpoint. Result: The non-routable, non-displayed BUY order is adjusted to the midpoint of the NBBO. The original limit will always be respected. An inbound SELL order that narrows the spread but does not touch the midpoint comes to rest on the IEX book. The resting non-displayed BUY order is allowed to express its full limit price and trade up to $.10. It is invited across and executes against the SELL order at $ Minimum Quantity Order Protection: Composite and Minimum Execution Minimum Quantity Orders ( MQTY ) are Market or Limit Orders that must have at least their minimum indicated share size satisfied in order to be executed. Orders marked MQTY must be non-displayed IEX Only orders. IEX Subscribers must elect to configure either Composite or Minimum Quantity as a setting for each port. Composite Behavior When taking liquidity, Minimum Quantity is satisfied by one or more orders on the IEX Book, provided the amount traded in aggregate will at least equal the order s Minimum Quantity. If an order s MQTY value is larger than an order s share size at order entry, or if the order is subsequently is decremented below its minimum quantity value through execution or Subscriber instruction, IEX treats the order as having a minimum quantity value equal to the remaining unexecuted share size. For resting MQTY orders, if the specified minimum quantity of shares is not satisfied by a contra side order, orders will surrender their priority position only for the duration of processing a given active order against the Book. IEX Group, Inc. Page 3 of 8

4 1 NBBO is $.01 $ Minimum Quantity Example: Composite IEX receives a non-routable, non-displayed BUY order for 7,500 shares w/ $.0 and minimum quantity condition of 5,000. The order is priced at the midpoint $.015 A non-routable SELL order for 3,000 shares joins the $.0 (3,000 does not satisfy the BUY order s 5,000 minimum quantity) A second non-routable SELL order for,000 shares joins the $.0 (5,000 cumulative satisfies the BUY order s 5,000 minimum quantity) Two executions for a cumulative 5,000 shares occur in separate lots of 3,000 and,000 First execution for 3,000 $.0 (against resting SELL OFFER) Second execution for,000 $.0 (against newly submitted resting SELL OFFER) The original non-displayed BUY order is decremented to a quantity of,500 shares from 7,500. The order is re-assigned a new minimum quantity condition of, IEX receives an active IOC SELL order for,500 shares at the market. 8 An execution for,500 shares $.015 midpoint 9 The original non-displayed BUY order is fully filled. Result: The original non-displayed BUY order for 7,500 shares is decremented as it is executed against eligible contra side trading interest. After cumulative ( composite ) sell interest of 5,000 shares accrues (thereby satisfying minimum quantity provision in aggregate), two discrete fills of 3,000 and,000 shares, respectively, are executed.,500 unfilled shares remain, and the order is assigned a new minimum quantity of,500. Finally, the resting BUY order receives an execution for,500 shares, which fully fills the order. Minimum Execution Behavior When taking liquidity, Minimum Quantity must be satisfied by only one order on the IEX Book that will at least equal the MQTY defined by the taker. Upon reaching a resting order which would trade with the active order, which does not satisfy the active order s MQTY, the active order will post to the IEX Book or be cancelled back to the Subscriber as per the order s TIF instructions. 1 NBBO is $.01 $.0 3 Minimum Quantity Example: Minimum Execution IEX receives a non-routable, non-displayed BUY order for 500 shares w/ $.0 and minimum quantity condition of 00. The order is priced at the midpoint $.015 IEX receives a non-routable, non-displayed SELL order for 300 shares w/ $.0 The order is booked at the prevailing OFFER price of $.0 IEX Group, Inc. Page of 8

5 5 7 8 Minimum Quantity Example: Minimum Execution IEX receives a second non-routable, non-displayed SELL order for 00 shares w/ $.0 The order is booked at the prevailing OFFER price of $.0 No execution occurs, as the most senior SELL order in the IEX queue represents a quantity of only 300 shares, inferior to the minimum quantity of 00 shares defined for the BUY order The non-routable, non-displayed SELL order for 300 shares w/ $.0 is cancelled by the broker An execution for 00 shares $.0 OFFER price The non-routable, non-displayed BUY order is decremented from 500 to 100 shares. The non-routable, non-displayed BUY order has only 100 shares remaining. The 100 remaining unfilled quantity is inferior to the minimum quantity condition, and therefore, IEX cancels the order. Result: At first, although the cumulative 700 shares of SELL interest resting at the OFFER exceeds the resting BUY order s minimum quantity of 00 shares in aggregate, the SELL order at the front of the queue has a quantity of only 300 shares, and thus ineligible to execute against the resting BUY order. After the SELL order of 300 shares is cancelled, the subsequent SELL order is promoted to the top of the queue, and executes against the BUY order at the OFFER price of $.0. Finally, the BUY order is cancelled by IEX, as the remaining unfilled quantity of 100 shares is inferior to the minimum quantity condition of 00 shares.. Book Recheck The IEX Book continuously monitors for matching opportunities resulting from changes within the book or from changing market conditions. Immediately following a change to the order book, a change to the NBBO, the receipt of a new inbound message, IEX may test orders on one or both sides of its market against the contra side of our book to determine if new executions can occur as a consequence of the change in the IEX inside market or NBBO. 1 NBBO is $.13 $.1 3 Book Recheck Example IEX receives a non-routable, non-displayed BUY order for 1,000 shares w/ $.1 and (composite) minimum quantity condition of 1,000. The order is priced at the midpoint $.135, w/ $.1 A resting SELL order for 00 shares joins the $.1 IEX then tests for possible opportunities to trade and books the new 00 share $.1. The original resting BUY order for 1,000 shares is invited to Recheck the contra side of the IEX book and express its ultimate limit. No opportunities are found. The minimum quantity of the BUY order is not satisfied. 5 A resting SELL order for 00 shares w/ limit of $.1 joins the $.1 IEX tests for possible opportunities to trade then books the new 00 share $.1. IEX Group, Inc. Page 5 of 8

6 7 8 The original resting BUY order for 1,000 shares is invited to Recheck the contra side of the IEX book and express its ultimate limit. The composite 1,00 $.1 satisfy the 1,000 minimum quantity. IEX Recheck results in two separate $.1 for a cumulative 1,000 shares traded. The first execution is for 00 $.1. The second execution is for 00 $.1. Result: The original non-displayed BUY order for 1,000 shares is filled upon Recheck following a new inbound order because the aggregate quantity of contra side trading interest meets its minimum quantity condition. 5. Discretionary Peg Upon entry, a Discretionary Peg Order is priced by the System to be equal to the Midpoint Price. Unexecuted shares are posted to the Order Book priced equal to the primary quote and automatically adjusted by the System in response to changes in the NBB or NBO. Discretionary Peg Orders can exercise price discretion to the Midpoint Price and respond to quote stability signals from the System. Discretionary Peg Orders are not eligible for routing and must have a TIF of FOK, IOC, DAY, or GTT. 1 Price Discretion: Discretionary Peg Orders exercise the least amount of price discretion necessary, from the resting price to the less aggressive of the Midpoint Price or the peg s limit price, to meet the limit price of orders entering the Order Book. When exercising discretion, Discretionary Peg Orders maintain time priority at their resting price and are prioritized behind any resting orders at the discretionary price. Discretionary Peg Orders are eligible to Recheck the Order Book to the Midpoint Price. Quote Stability: During periods of quote instability, Discretionary Peg Orders are not eligible for Book Recheck and do not exercise price discretion. Quote stability is determined by the System based on an IEX proprietary assessment of relative quoting activity of Protected Quotations over a given period of time. Discretionary Peg Examples NBBO is $.10 $.1 with the following IEX Book --- Midpoint Peg $ $.11 Limit 1000 $.11 $.11 Primary Peg 1000 $.10 IEX receives a Discretionary Peg BUY order for 5000 shares w/ $.13. Result: The order tests the IEX Book at the Midpoint Price, $.1, and results in a 1000 share execution against the resting midpoint SELL order, then joins the BID (behind the existing 1000 share Primary Peg BUY order booked at $.10). 3 IEX receives an unpriced Midpoint Peg BUY order for 500 shares that the Midpoint Price. IEX receives a BUY order for shares w/ $ Midpoint Peg 500 $.1 $.11 Limit 1000 $.11 $.11 Primary Peg 1000 $.10 $.13 Discretionary Peg 000 $.10 IEX Group, Inc. Page of 8

7 IEX receives an IOC SELL order for 1500 shares at the Midpoint Price. Result: The order tests the IEX Book at the Midpoint Price, $.1, and results in a 500 share execution against the resting Midpoint Peg. The Discretionary Peg BUY order exercises price discretion up to the Midpoint Price and results in a 1000 share execution against the active IOC SELL order. $.11 Limit 1000 $.11 $.11 Primary Peg 1000 $.10 $.13 Discretionary Peg 3000 $.10 IEX receives a SELL order for 1500 shares w/ $.11. Result: The order tests the IEX Book down to its limit and results in a 1000 share execution against the resting Limit BUY $.11. The Discretionary Peg BUY order exercises price discretion up to $.11 and results in a 500 share execution against the active Limit SELL order. $.11 Primary Peg 1000 $.10 $.13 Discretionary Peg 500 $.10 IEX receives a SELL order for 1500 shares w/ $.09. Result: The order tests the IEX Book down to its limit (within the NBB) and results in a 1000 share execution against the resting Primary Peg BUY $.10 and a 500 share execution against the Discretionary Peg BUY $.10. At a time IEX determines the NBBO to be inefficiently transitioning from $.10 $.1 to $.09 $.13, IEX receives a Discretionary Peg SELL order for 1000 shares w/ no limit price. Result: The order tests the IEX Book at the Midpoint Price, $.1, and results in no execution. The IEX System has determined the quote is unstable so the Discretionary Peg BUY does not exercise price discretion at this time. The Discretionary Peg SELL order posts on the $.1. Once the NBBO completes the transition to $.09 $.13, the Discretionary Peg SELL order will join the Limit SELL order $ Discretionary Peg $ $.13 Discretionary Peg 000 $.09 Once the IEX System determines the newly established NBBO to be $.09 $.13, Book Recheck invites the two Discretionary Peg orders to exercise price discretion to the Midpoint Price and results in a 1000 share execution at the new Midpoint Price of $.11. $.13 Discretionary Peg 1000 $.09 Market ticks up to $.11 $.15. Once the IEX System determines the newly established NBBO to be $.11 $.15, Book Recheck invites the Discretionary Peg to exercise price discretion up to the Midpoint Price and results in a 1000 share execution against the Limit SELL order $.13. IEX Group, Inc. Page 7 of 8

8 Questions? Talk to us. IEX Market Operations IEX Group, Inc. Page 8 of 8