Deutsche Bank Equities SuperX APAC Alternative Liquidity Pool Guidelines August 2016 Powered by Smarter Liquidity Innovation with Integrity Powered by
Contents 1. About SuperX 2 i. Introduction 2 ii. Scope of Products 2 iii. Trading Hours 2 2. User Eligibility 2 3. How to Access SuperX 3 i. SuperX+ 3 4. Matching Price 4 5. Order Types and Parameters 4 6. Pool Priority 4 7. Matching Permissions and Opt-Out Arrangements 4 8. Technical Summary 5 9. Commissions and Fees 5 10. Order Cancellation 5 11. Aggregation 5 12. TCA 5 13. Internal Control Procedures 6 i. Fair and Orderly Functioning of SuperX 6 ii. Potential Conflicts of Interest 6 14. Contingency Arrangements 7 15. Risks 7 16. Staff Access 7 17. Version Control 8 Contacts 9 Disclaimer 9 1 SuperX APAC Alternative Liquidity Pool Guidelines Deutsche Bank
1. About SuperX 2. User Eligibility i. Introduction User access to SuperX will be restricted according to local rules and regulations. SuperX is Deutsche Bank s (DB s) alternative liquidity pool (ALP) for equities, allowing users, including internal DB desks to interact with our liquidity in an automated fashion. Within the Asia Pacific (APAC) region, SuperX is currently available in Australia, Hong Kong and Japan (operated by Deutsche Securities Australia Limited, Deutsche Securities Asia Limited and Deutsche Securities Inc. respectively). These ALP Guidelines provide comprehensive details on the operation of SuperX. Unless otherwise indicated, the following information pertains to all three instances of SuperX in Australia, Hong Kong and Japan. The latest version of these ALP Guidelines and additional materials containing information on SuperX in other global markets can be found at the Autobahn Equity website here: https://autobahn.db.com/equity. ii. Scope of Products SuperX supports all equity securities listed on the primary exchange. However orders for suspended securities cannot be executed within SuperX and in Hong Kong, short sell orders cannot be executed. iii. Trading Hours Orders can be matched within SuperX during the continuous trading sessions of the primary exchange. From 1st December 2015, only Qualified Investors1 are eligible to be users of SuperX Hong Kong and these ALP Guidelines will be brought to the attention of each Qualified Investor prior to any of their orders being routed to SuperX Hong Kong for the first time. Similarly, users of SuperX Australia are required to have additional documentation brought to their attention prior to any of their orders being routed to SuperX Australia for the first time. Orders from eligible users may be placed within SuperX at DB s discretion unless they request to opt-out (see below for further opt-out details). I.e. orders from users who have not opted-out are not guaranteed to be placed into SuperX. In Hong Kong we are required to identify the authorised trader responsible for placing each order. Therefore we request that users provide this information on each order sent via FIX. Orders that do not contain this information may not be placed into SuperX Hong Kong. Note 1: Qualified Investors are defined as (i) a person falling under paragraphs (a) to (i) of the definition of professional investor in section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance; or (ii) a person within the meaning of sections 3(a), (c), (d)(i), d(iii) or d(iv) of the Securities and Futures (Professional Investor) Rules. 2
3. How to Access SuperX Users may access SuperX directly; through the Autobahn Trading platform; or by placing an order with DB s High Touch trading desks as illustrated in the diagram below. When users send orders directly into SuperX, or instruct the Smart Order Router (SOR) to specifically target the ALP, those orders will be classified as Client Self Directed flow. Orders tagged in this way may be subject to counterparty selection logic applied in the SuperX pool as described in this document. The majority of users will access SuperX by using our Autobahn trading platform - either directly, or by placing an order with the Cash and Program Trading High Touch trading desks, who in turn will place orders using Autobahn. All our algorithms have access to the SuperX pool as well as several external dark venues and will place orders into these venues as part of the normal course of trading in an attempt to improve both price and available liquidity. For example, a VWAP algo may place a portion of its available volume into SuperX at midpoint before crossing the spread in the lit market in an attempt to improve price. Alternatively, a large Stealth order may have its balance placed into SuperX and a number of external dark venues 1 in an attempt to access liquidity that is not available in the lit market. i. SuperX+ When trading in these alternative pools of liquidity, the system utilises the SuperX+ alternative liquidity pool logic 2, designed to maximise access to additional liquidity while reducing the chances of an adverse fill. SuperX+ uses dynamic price controls when interacting with all pools as well as Minimum Execution Quantity (MEQ, also known as Minimum Acceptable Quantity) parameters to ensure that fills are of a suitable size. Additional controls are placed on orders sent to external ALP venues such as maximum order sizes and although we cannot control counterparty interaction within external ALP venues, routing to these venues can be disabled on request (please contact your DB Equity coverage representative for further details). Each ALP and Primary venue are treated as separate venues. While parent orders may be sliced into different venues, individual child order slices are not replicated across multiple venues simultaneously. The usage of, and allocation of orders between, the various ALP venues is at DB s discretion and may change over time. SuperX+ can be used as a stand-alone algorithm and configured to your needs please contact your DB Equity coverage representative for more information. Co-location with the SuperX system is not available. Clients Principal Activity Direct Orders Client Self Directed DMA 3 DSA 3 Care Orders Cash / PT Desk Algo Platform SOR / SuperX+ Lit Markets SuperX External Alternative Liquidity Pools Note 1: for the latest venues that are accessible via the Autobahn platform see the Execution Destinations materials on the Autobahn Equity website here: https://autobahn.db.com/equity. Note 2: SuperX+ logic may be part of the algorithm itself rather than a standalone router in some instances. Note 3: DMA is Direct Market Access, DSA is Direct Strategy Access. 3 SuperX APAC Alternative Liquidity Pool Guidelines Deutsche Bank
4. Matching Price All matches occur at-or-within the Best Bid and Best Offer (BBO) and additional exchange price controls may be applied (for example the HKEx Volatility Control Mechanism). For the purposes of this document, BBO is defined as the Best Bid and Best Offer available on the specific lit venues shown as BBO sources in the Technical Summary table below. After applying Limit Price, Peg Instructions and Pre-Match Order Price Rounding rules as described in this document, the match price will be set by the resting order in the pool. For example: In a market with a BBO of 10.10 x 10.14, entering a buy order with a market peg into the pool when there is a resting sell order with a price limit of 10.13 will result in a match at 10.13. 5. Order Types and Parameters SuperX supports the following order types and order parameters which can be set as defaults if required. Please contact your DB Equity coverage representative for further details. Order Type Market Order Limit Order Pegged Order Description Order can match at any price at or within the BBO Order can match at the limit or better, at or within the BBO Market: Far touch or better Mid-point: (Bid + Offer) / 2 or better Primary: Near touch Note: Market Peg is the default, though this can be changed on request. Limit and Peg can be used together on the same order. Parameter Minimum Execution Quantity (MEQ) Behaviour The minimum contra-side order quantity that can be matched with. SuperX does not aggregate orders to meet MEQ. Where the unfilled quantity of the order is less than the MEQ, MEQ will be reduced to that quantity. 6. Pool Priority There is only one pool of liquidity and SuperX continuously matches orders in price, time priority while the stock is in its continuous trading phase on the primary exchange. In Hong Kong and Japan, Agency orders are prioritised above Principal orders when they have the same price (regardless of time) but otherwise all counterparties are treated with equal priority. In Hong Kong, DB Swap hedges are treated with the same priority as other Principal orders. 7. Matching Permissions and Opt-Out Arrangements Users can choose to opt-out of interacting with SuperX entirely or to opt-out from interaction with any combination of the following groups: Flow directed to SuperX via a DB algorithm or Smart Order Router (SOR) on behalf of: 1. DB Agency: Client agency flow 2. DB Swap: DB hedges of client Swap flow 3. DB Principal Flow: Including facilitation activity, nonswap related hedging, ETF market making, etc. Self Directed Flow: 4. Client flow (Cash and Swap) that is placed into SuperX directly or by instructing the SOR to target SuperX as a venue. If two matching orders are not permitted to cross with each other because one or both sides have opted out, then the orders will be ignored for matching purposes and remain in the pool until executed or cancelled. (This may result in queue priority being given up). Users may also choose to not cross with other entities in their group. Users who choose to opt-out will be asked to reconfirm their preferences on an annual basis. Time-In-Force IOC: Immediate or Cancel. The order will match and cancel back the balance. Day: The order will remain in the book until it is fully filled, cancelled, or the end of continuous trading. Deutsche Bank SuperX APAC Alternative Liquidity Pool Guidelines 4
8. Technical Summary SuperX Australia SuperX Hong Kong SuperX - Japan MIC code DBSX DBSX DBSX Matching Engine Location Order Entry Protocol Pre-match Order Price Rounding Global Switch data centre, Ultimo, Sydney. Deutsche Bank Hong Kong data centre, ICC, Kowloon. @Tokyo data centre, Toyosu, Tokyo. SuperX supports order entry via FIX. There is no proprietary protocol available. Passively rounded 1 to mid-point or valid price tick inside the BBO. Passively rounded to 3 decimal places. Passively rounded to JPY 0.05. BBO Source 2 Direct from ASX and Chi-X. Direct from HKEx. Direct from TSE. Feeds from SuperX Trade Reports SuperX is a completely dark trading venue. There is no outbound market data feed made available internally or externally. DB s SOR and trading algorithms do not receive any information about orders resting in SuperX. Synchronously to ASX or Chi-X 3. Asynchronously to the HKEx within 1 minute. Synchronously to ToSTNeT 4. Note 1: Passively rounding means rounding down for Buy orders and up for Sell orders. Note 2: Delivered over DB s dedicated network to a Reuters RDFD plant which is co-located with SuperX. Note 3: ASX condition code NXXT, Chi-X condition code NX. Only once the Trade Report has been accepted will SuperX consider the cross as successful, ensuring that the reporting venue also validates the trades report conditions Note 4: Fills are reported back to users after execution at ToSTNeT. (Note that an indicative fill mode is available). 9. Commissions and Fees Orders that are executed within SuperX are subject to the usual negotiated commission rates and standard market charges. There are no additional fees or rebates for providing or taking liquidity in SuperX. 10. Order Cancellation Unexecuted orders may be cancelled or modified at any time during the trading day. (Such modifications may result in a loss of queue priority). Any unexecuted orders remaining in SuperX at the end of each trading day will be automatically cancelled. 11. Aggregation Orders are not aggregated within SuperX. 12. TCA and Reporting Upon request, regular transaction cost analysis (TCA) can be made available to the users of SuperX concerning the transactions that are conducted on their behalf in the ALP. Where available, fill information is provided back to users in real-time with the SuperX venue indicated in Tag 30. Where not available, fill information reports can be prepared on request. 5
13. Internal Control Procedures DB s Electronic Trading Controls Risk Assessment (ECRA) sets the framework for DB s minimum standards in relation to Electronic Trading and it defines such standards on a global basis. These controls are designed to protect both the platform and the market. Internal control procedures that ensure the fair and orderly functioning of SuperX and that address any potential conflict of interest concerns include the following: i. Fair and Orderly Functioning of SuperX Pre-trade Risk Controls: Orders that enter SuperX are subject to pre-trade risk controls including maximum single order notional limits and maximum daily aggregate notional limits. Coverage: Orders placed into SuperX via our algorithmic trading platform are monitored by our dedicated Autobahn Equity coverage team. IT Support: Production Support monitor the performance of the electronic platform including SuperX in real-time and are immediately alerted to any incidents or issues. Testing: All changes to SuperX are subject to robust testing and deployment policies and procedures. Surveillance: Our Compliance function perform daily surveillance over orders executed in SuperX to ensure adherence with local rules and regulations. Kill Switch: If necessary, and subject to internal approval procedures, we can cancel orders in SuperX or disable the pool entirely. Analytics: SuperX execution data is included in internal analytics reports which are subject to regular review. Governance: Key stakeholders including Business, COO, Compliance, Group Technology, and Operations participate in SuperX governance meetings. Capacity: Usage capacity of SuperX is regularly monitored and appropriate capacity planning is conducted. SuperX has sufficient capacity to handle any foreseeable increase in business volume and market turnover but in the unlikely event that the capacity of SuperX is exceeded then DB has contingency arrangements in place. (See separate Contingency Arrangements section below). ii. Potential Conflicts of Interest Book Priority: As mentioned previously, in Hong Kong and Japan, Agency orders are prioritised above Principal orders within SuperX s order book. System Access: Access to the SuperX system is restricted in accordance with the provisions set out in the Staff Access section below. Furthermore, no external clients have access to any data inside the SuperX system. Data Feeds: SuperX is a completely dark trading venue. The matching process is only based on orders that have been submitted to SuperX subject to the matching rules in each location. Fees and Rebates: There are no additional fees or rebates for providing or taking liquidity in SuperX. Transparency: These ALP Guidelines are publically available to ensure that users are fully informed as to how SuperX operates. Deutsche Bank SuperX APAC Alternative Liquidity Pool Guidelines 6
14. Contingency Arrangements DB have contingency plans to cope with the event that SuperX experiences a material system delay or failure and these plans are tested to ensure they remain viable and adequate. In the event of a material system delay or failure with SuperX or SuperX+, we will use appropriate communication methods to inform impacted users of the causes, or possible causes and to confirm the manner in which their orders will be handled. Unexecuted orders will usually be either cancelled, routed to the primary exchange or held pending resolution of the incident. We may not relay system or failure communications in relation to alternative liquidity pools that are operated by other external brokers, unless they materially impact our own systems. 15. Risks Interactions in SuperX should be viewed with the same caution as any other trading venue, lit or dark. Further we do not represent that SuperX is in any way safer than any other trading venue. Although all SuperX matches occur at or within the BBO, the SuperX execution price may not always be better than the price that could have been achieved on the primary exchange. As with all trading venues, SuperX may occasionally be impacted by market data or system delays or outages which may result in users orders being delayed or cancelled. 16. Staff Access Access to the SuperX system is restricted to only the Production Support team. Other functions are granted visibility over SuperX related order flow information on a need-to-know basis as summarised below: Department Team (all levels) SuperX Access Reason for access Global Markets Equity Global Markets Equity Group Technology and Operations Global Markets Equity Autobahn Equity coverage desk High Touch and Program Trading sales traders and Facilitation traders Production Support Product Development Real-time visibility of orders placed into SuperX by electronic trading clients No view of the pool Real-time visibility of orders that they have placed into SuperX by their respective desks No view of the pool Real-time access to the SuperX system via log files (not via GUI) Real-time visibility of algorithms and their child orders that have been sent to SuperX No view of the pool Compliance Surveillance Visibility over orders executed on SuperX on a post-trade basis No view of the pool Group Technology and Operations Operations Access to post-trade SuperX order information No view of the pool To monitor the performance of orders To monitor the performance of orders To monitor the technical health of the SuperX platform and provide first (and second) line support for incident investigation and remediation To provide third line support for algorithm incident investigation and remediation To perform surveillance on orders executed on SuperX to ensure adherence with local rules and regulations Performance of normal trade booking, confirmation and settlement processes 7 SuperX APAC Alternative Liquidity Pool Guidelines Deutsche Bank
17. Version Control These ALP Guidelines will be updated over time as necessary to ensure that they remain comprehensive, accurate and current. Updated versions will be circulated to users of SuperX Hong Kong and the most current version will be published on the Autobahn Equity website here: http://autobahn.db.com/equity Version Date Changes since previous version Reason for changes 1.2 Aug-16 Functionality change: s4 - added new matching price condition that exchange price controls may be applied (for example the HKEx Volatility Control Mechanism). Other minor presentational and grammatical updates. Minor functionality change 8
Deutsche Bank Equities Contacts: European Execution Desk: +44 (0)207 547 2022 autobahnequity.emea@list.db.com Asia Pacific Execution Desk: +852 2203 6100 autobahnequity.apac@list.db.com Australia Execution Desk: +61 2 8258 2862 autobahnequity.australia@list.db.com US Execution Desk: +1 212 250 3988 autobahnequity.us@list.db.com Japan Execution Desk: +813 5156 6642 autobahnequity.tokyo@list.db.com Website: autobahn.db.com/equity Autobahn Autobahn Equity is part of Deutsche Bank s electronic trading platform, providing you with access to execution solutions in all major equities markets. Autobahn trading is available in both lit and alternative venues via our flexible suite of algorithms or direct market access (DMA) and both are supported by robust risk controls. Detailed market knowledge and algorithmic trading expertise are provided by our dedicated coverage team. Disclaimer Printed August 2016. MARKETING MATERIAL. Quantitative models, processes and parameters are subject to amendment, modification, adjustment and correction at Deutsche Bank s discretion, and may incorporate Deutsche Bank s qualitative judgment. Deutsche Bank will from time-to-time run or update such models at its discretion. Clients are responsible for making their own determination as to the suitability and appropriateness of such models for their investment objectives. This document is intended for discussion purposes only and does not create any legally binding obligations on the part of Deutsche Bank AG and/or its affiliates ( DB ). Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. It does not constitute a recommendation or endorsement by DB of any investment, trading strategy or algorithm and should not be relied upon by you to make a determination as to whether or not to invest or to use any strategy or algorithm. 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