DRECT Market Guide Version 7.0 october 2012
DRECT マーケット ガイド 2 CONTENTS 1. Introduction... 3 2. Features... 4 Crossing Engine... 4 Universe Hours Currencies Internal Market Structure and Matching Rules Cross Suspension/Restriction Price Limits Order Types and Parameters Short Selling Post-Trade Reporting Smart Order Routing (SOR)... 7 Execution Venues Strategies Security... 8 Anti-Gaming Information Security Server Security Network Security Database Security 3. FIX Connectivity... 10 4. FAQ... 9 This document has been prepared by Daiwa Securities Capital Markets Co. Ltd. ( Daiwa Securities Capital Markets ) based on information, the sources of which are believed by Daiwa Securities Capital Markets to be reliable, but Daiwa Securities Capital Markets makes no representation nor warranty as to the accuracy or completeness of such information. Recipients of this document must make their own decisions on whether or not to adopt the recommendations discussed in this document, based upon their specific situations and objectives. Any use, disclosure, distribution, dissemination, copying, or reproduction of this document without prior written consent from Daiwa Securities Capital Markets is prohibited.
DRECT マーケット ガイド 3 1. INTRODUCTION This document is designed to give users a better understanding of the services and functionality provided by the Daiwa Routing and Execution Crossing Technology (DRECT) platform so that users may be better prepared to take full advantage of the advanced execution capabilities. Further technical information regarding the FIX connectivity specifications will be provided under separate cover on request. For any questions regarding the material presented in this document, please contact anyone listed at the end of the document in the Contacts section.
DRECT マーケット ガイド 4 2. FEATURES Our aim is to provide Daiwa clients with enhanced execution capability through our state-of-the-art non-displayed liquidity matching engine and smart order router (SOR). We expect that our high-speed matching engine and SOR will efficiently maximize internal crossing opportunities and deliver seamless access to multiple venues with minimal latency. Crossing Engine Universe Hours TSE primary listed equities as defined in our best execution policy will be available for crossing. Osaka and Jasdaq primary listed equities (Q1 2013) Continuous Crossing Available during continuous trading hours of the Tokyo Stock Exchange (9-11am and 12:30-3pm JST) on business days. Currencies JPY Internal Market Structure and Matching Rules General Pricing Orders may be placed at quarters of the bid-ask spread {BID, MBM, MID, MAM, ASK} quoted by the primary exchange. Matched orders may be price-improved to eighths of the spread. Priority Orders are matched in priority of price, quantity, and then time Method Orders are matched continuously. Reporting All crosses will be exchange-reported and subject to confirmation from the reporting venue. Constraints Counterparty opt-out - Clients have the option to opt-out of crossing with certain counterparties such as pure proprietary trading (prop) or Daiwa s client-facing facilitation desk (principal). Decimals Restrictions on the decimal precision (for execution price) can lead to
DRECT マーケット ガイド 5 exclusion from crossing opportunities. Default precision is 4dp. Minimum Quantity Setting a minimum quantity constraint can lead to exclusion from crossing opportunities. Other crossing limits By default, orders from the same client will not be crossed. Other client-specific crossing constraints may be entertained. Crossing Points - Restricting crossing points can lead to exclusion from price-improvement logic and reduce crossing opportunities Cross Suspension/Restriction DRECT may suspend or restrict crossing in the following cases: During auction ( itayose ) states of the exchange. This includes, but is not limited to, the opening auction, closing auction, resumption of continuous trading following trading suspension or special quotation ( kehai ). During special quotation ( tokubetsu kehai ) and continuous execution quote ( renzoku yakujyo kehai ) state of the exchange. When the exchange has suspended trading in the security. When we detect an abnormality with the exchange or reporting venue. Other cases where Daiwa deem necessary to protect our clients interests. Handling of Orders DRECT will accept new orders, cancels, and amends even while order matching in the security is suspended. Pegged orders will follow the market data quotes published by the exchange. Matching will be re-started as soon as the exchange resumes continuous trading. Clients will be immediately notified in cases where we deem it improbable that matching will resume in a reasonable timeframe. Price Limits DRECT accepts prices which are within the designated price band set by the primary exchange. DRECT can accept up to 4 decimal points on the price, but will automatically round (up for sells, down for buys) the orders to the nearest price point on the relevant venue. Order Types DRECT supports the following order types: Auto-Matching (Default)
DRECT マーケット ガイド 6 This is not an order type, per se, but once the client has agreed to use DRECT, the default behavior will be for all orders (via DMA, Algo, Worked, Program, etc.) to cross internally on the way out to the exchange and post-back unexecuted exchange orders. Resident A resident order is a Limit or Market order which is posted solely on the order book of the crossing engine. A resident order at market will peg to the far touch. Transient A transient order is a resident order with time-in-force of Immediate-or-Cancel (IOC) or Fill-or-Kill (FOK). IOC orders will execute what it can and cancel the remaining portion. FOK orders will cancel if the entire quantity cannot be executed within the given limit price. Dark Peg A dark peg order is a resident order which pegs to a primary market quote selected by the PegTo parameter. Please see below for a description of the parameters. Dark Iceberg A dark iceberg order is a resident order which only posts a fraction (set by the DisplayQty parameter) of the entire order. When the full displayed quantity has been executed, another slice of size DisplayQty is posted until the remaining quantity is less then the display quantity, whereby the remainder will be posted. Order Parameters DRECT supports the following order parameters: Minimum Quantity Most resident orders can be set so that they will not cross with orders under a certain number of shares. This parameter is supported for resident, transient IOC, and Dark Peg, but not for transient FOK and Dark Iceberg. End Time / Expire Time End/Expire time can be set on all resident order types. TimeInForce TimeInForce is a required parameter for resident IOC and FOK orders
DRECT マーケット ガイド 7 DisplayQty DisplayQty is a required parameter for Dark Iceberg orders. It expects a multiple of the trading lot. PegTo The PegTo parameter is required for Dark Peg orders and specifies which primary exchange quote to peg the order to. Valid choices are: LAST, BID, ASK, MID, MBM(mid of BID and MID), and MAM (mid of ASK and MID). PegTo can also be specified on DMA orders and allows automatch DMA orders to have a different limit price in DRECT. PegTo will peg up/down to the DarkLimit. DarkLimit The DarkLimit parameter is applied to the DRECT leg of automatch orders. With DarkLimit, orders can be worked more aggressively in DRECT compared to the displayed venue. Short Selling DRECT accepts resident short-sell orders at any price. Automatch short-sell orders are subject to exchange validation unless the DarkLimit or PegTo parameter is specified. Post-Trade Reporting DRECT stores a snapshot of the aggregated market state at each decision point in the engine and a detailed best execution report can be provided at the client s request. Overall monthly figures and statistics will be summarized and made available upon request. Smart Order Routing Execution Venues Tokyo Stock Exchange DRECT Crossing Engine SBI JapanNext (October 2012) Chi-X Japan (December 2012)
DRECT マーケット ガイド 8 Universe Hours TSE primary listed equities as defined in our best execution policy will be available for smart order routing. Non-PTS-listed securities will not be subject to smart order routing. SOR: 9am to 3pm PTS-DMA: Hours of operation of the relevant PTS Trade Reporting PTS trades are classified as OTC transactions Routing Rules Price: Routing will be determined in order of best marketable price. New orders will sweep the aggregated order book, and residual quantity will be dually posted to the primary exchange and our darkpool. Once dually posted, orders will not re-sweep even on price amends. Venue: In the case where marketable prices are identical, we will sweep in order of darkpool, primary exchange, and finally the PTS. Security Anti-Gaming DRECT is an anonymous non-displayed liquidity venue. However, it will be continuously monitored by qualified support staff for suspicious trading patterns and analyzed for adverse selection. DRECT provides a minimum cross quantity option and opt-out with selected counterparties (such as prop). DRECT crossing is suspended in sync with abnormal states of the exchange such as special indication quotation, continuous execution quote, auctions, and trading suspensions to prevent crossing at potentially adverse prices. Information Leakage Control To minimize information leakage, viewing access to the DRECT order management system is limited to assigned IT personnel. That is, neither salestraders, nor proprietarytraders, nor any other non-essential IT personnel have viewing access of DRECT order flow. Server security Our servers are located in our locked and monitored (by camera) data center. Access is granted through a system called e-trust, whereby each login access request (for support, maintenance,
DRECT マーケット ガイド 9 etc.) is issued, logged, and controlled. Remote access is permitted only through dedicated terminals in a similarly locked, logged, and monitored room in the Daiwa HQ building. Network security Our production hosts are completely segregated from user and developer network segments. DRECT always acts as the FIX initiator to the exchange gateway and the OEMS, and similarly initiates the connection to our dedicated market data server. Passive monitoring capability is enabled for our IT team only on specific applications. Database security DRECT s trade repository database is maintained by IT for monitoring purposes. database server is on the same network segment with the production hosts and inaccessible from the user segment. The 3. FIX CONNECTIVITY Fix version 4.2 is supported for DMA connectivity to DRECT. Details are available under separate cover in the Daiwa Securities Capital Markets FIX specification document. 5. FAQ Darkpool 1. Q: How is crossing handled during opening and closing auctions? A: There is no crossing during auction periods. Orders with time-in-force of open, close, and funari will not be crossed. 2. Q: What are the price increments on DRECT? A: DRECT ticks are set at quarters of the primary exchange bid-ask spread. Valid prices are at the primary-exchange provided best BID and best ASK quote, the MID=mid(BID,ASK), and at MBM=mid(BID, MID) and MAM=mid(MID, ASK). Price-improvement logic can potentially match orders at eighths of the bid-ask spread. 3. Q: What will happen to orders with limit prices which are not at the exchange or DRECT-defined price ticks? A: Limit prices which are not integer multiples of the target venue s tick increment will be rounded on the fly to the nearest price point on the relevant venue. The rounding
DRECT マーケット ガイド 10 methodology depends on the side of the order and the maximum acceptable decimal precision of the client. Default price precision is 4dp. 4. Q: Do you accept orders during intra-day special quotation states? A: The crosser will accept orders, but crossing will be suspended during non-continuous trading phases of the market. 5. Q. Where will Peg orders be pegged to during special quotation states? A: Peg orders will be pegged to the relevant quote provided by the market data feed. Matching will commence once the special quotation state has cleared and continuous trading has resumed. 6. Q: Will I ever be crossed at a price outside of the primary exchange s bid-ask spread? A: The crossing engine is configured to cross only within the exchange s published bid-offer spread during continuous trading. 7. Q: What order types are supported by DRECT? A: Pure resident orders can be LIMIT or MKT with DAY, IOC, or FOK time-in-force, Peg {last, bid, mbm, mid, mam, ask}, or Iceberg. Pure resident orders also support a minimum cross quantity except for FoK. 8. Q: What anti-gaming provisions do you have in place? A: DRECT will be continuously monitored for suspicious activity and analyzed for adverse selection. DRECT also provides a minimum cross size option and opt-out for selected counterparties (such as prop) in order to restrict the target liquidity. Moreover, crossing will be automatically suspended during all disruptions states of the primary exchange including special quotation circuit-breaker states, and trade suspension/termination states. 9. Q: How does DRECT ensure best execution? A: We believe DRECT offers a truly value-added service through provision of non-displayed liquidity, anonymity, and opportunity for price-improvement within the primary bid-ask spread. DRECT keeps detailed records of the market state at each decision point and a detailed best execution report is available on request. 10. Q: Does DRECT publish quotes, IOIs, or make its internal state visible in some way? A: DRECT is operated purely as a dark pool and therefore no order information is visible whatsoever. 11. Q: Who can see the liquidity in DRECT? A: DRECT can only be viewed by qualified IT and electronic trading staff for support and maintenance purposes. 12. Q: What is the expected latency of DRECT? A: Our benchmarks indicate latency is less than 3ms under high order and market data throughput conditions.
DRECT マーケット ガイド 11 13. Q: Does DRECT accept short sell orders? If so, what restrictions are there around short-selling? A: By law, naked short-selling is prohibited. Unlike exchange trades, off-auction crosses are exempt from the zero-plus tick rule. 14. Q: Can my worked orders be auto-matched? A: Orders worked by Daiwa traders will be auto-matched once the client has stated their preference to do so. 15. Q: How will minqty affect my crossing probability? A: The minqty parameter will reduce the probability of receiving allocations on a match in the crossing engine. 16. Q: Where will crosses be reported? A: Crosses will be reported on the off-floor reporting facility on the primary exchange of the relevant security. Smart Order Routing 1. Q: Is any paperwork required in order to start using the SOR? A: No paperwork is required for qualified professional investors. Others will be required to sign an agreement. 2. Q: What is a PTS A: PTS is an acronym for proprietary trading system and essentially the same as an MTF 3. Q: Which securities will be subject to smart order routing? A: A name must both be TSE primary listed as defined in our best execution policy and be available for trading on the relevant PTS. 4. Q: Are PTS executions on exchange? A: They are not. They are classed as OTC transactions 5. Q: Will PTS transactions be subject to the TOB rule? A: SBI JapanNext and Chi-X PTS transactions will be exempt from the TOB rule. 6. Q: How does the SOR work? A: The SOR routes marketable orders to whichever target venue has the best price. If prices are identical, the SOR will route according to anonymity and liquidty. Unexecuted quantity will be dually posted to our darkpool and to the primary exchange. 7. Q: Will the SOR re-sweep on price amends? A: The SOR only sweeps on new orders. 8. Q: Is it possible to specify, per order, which should be SOR? A: Each order can be configured to SOR or not based on FIX. However, there are
DRECT マーケット ガイド 12 varying degrees of difficulty in implementing this on the end-client OEMS. 9. Q: Are there any exceptions when the SOR is not routing to PTSs? A: The SOR will essentially follow the same market exceptions as the darkpool. In other words there is no SOR during opening/closing auctions, trade suspensions, special indications, and any other non-continuous quoting state of the market. 10. Q: Can the SOR be used for short-sell orders? A: Yes.