Wall Street Letter VOL. XLVI, NO. 1 - January 2014 | Page 12

NEWS

The exchange explained the feature
is modeled on the capabilities available at other exchanges except for the
fact that it will require agency order
stop prices to be at or between the
NBBO when submitted, but will allow
executions outside NBBO.
EXCHANGES & ATSs

CBOE to allow
electronic multiclass spread orders

12

The Chicago Board Options Exchange
will soon allow its trading permit
holders to submit multi-class spread
orders electronically, according to
a filing it submitted to the SEC to
amend its rules around the order type.
The change is intended to enhance
the audit trail for the process and
make the orders easier to create,
CBOE said.
According to the exchange’s
proposal, participants have only been
able to create the orders, which allow
a trader to hedge across different
options classes using index options,
manually and the orders have only
been executable on the trading floor.
But CBOE told the SEC it is updating its electronic order entry systems.
The updates will “provide for the
electronic entry and routing of multiclass spread orders to the floor of the
exchange”, it noted.
Multi-class spread orders are
required to have an appropriate hedge
between the two classes of options included in the order, such that the number of contracts for one option class is
equal or equivalent to the number of
contracts to be transacted in the second
class, CBOE noted. With the new
system, if orders sent to the exchange
don’t include the right combination of
contracts, they will be rejected.
Permit holders will be required to
notify CBOE floor staff, an order book
official or a designated primary market
maker about dissemination of the order
to the trading crowd, CBOE noted.

EXCHANGES & ATSs

CHX restricts interaction of MTP modifier
with Fill-or-Kill

T

he Chicago Stock Exchange told the
SEC it wants to restrict the ability
of its members to execute orders using
its new Match Trade Prevention (MTP)
modifier on an order that is also designated as Fill-or-Kill (FOK).
The change comes just after the exchange made its MTP modifier available
for use last month.
MTP allows holders of trading accounts
to group themselves into an MTP Trading
Group to allow order originators to limit
the ability of orders with an MTP Trading
Group designation to execute against orders with the same designation. According
to CHX rules, if accounts within the MTP
Trading Group have a sublevel designation, which is optional, orders from those
accounts can interact with orders from
other accounts within the same MTP Trading Group as long as the account also has a
sublevel designation.
CHX said in its original proposal in
November it noted the MTP modifier is
compatible with all modifiers that can be

applied to limit and market orders. But it
told the SEC the FOK modifier could be
ignored if the MTP modifier is not triggered right away.
The exchange noted it could make a
change to its system to limit this issue by
checking during a pre-match period as
to whether an MTP designation could
prevent order interaction, but it concluded
it wouldn’t make the change.
“[G]iven the tremendous amount of resources needed to modify the matching system to make this change and in light of the
fact that the exchange infrequently receives
FOK orders, the exchange proposes to reject
all incoming orders marked MTP and FOK
when the FOK modifier is reactivated.”

EXCHANGES & ATSs

BM&FBovespa
expands pre-trade
risk requirement to
all HFTs
BM&FBovespa is expanding a
requirement it has mandating the use
of its pre-trading risk limit control
capability, LINE, to all participants
that are classified as being highfrequency traders, according to a
circular distributed to its participants.
The exchange had set a mandate
for use of LINE initially for certain
participants using direct market
access to connect to the exchange.

Specifically, DMA users accessing
the exchange via direct connection,
investor co-location or co-location
with a brokerage were initially required to use LINE, and that mandate
was expanded in March to cover all
members using DMA.
Its latest circular on the issue noted
the requirement will be in place for
all HFT traders regardless of how
they access the markets.
BM&FBovespa noted traders will be
considered to be using high-frequency
focused strategies based on the number of messages they send and the
speed at which the messages are sent,
as well as the number and speed of
trades executed. The designation will
not be applied to fee rebates applied to
trades from HFTs, it stated.