How does CME do Pro-Rata in the Spread but do FIFO in the Outright?

D

Deen

Hi All,

I'm new here and here to get an answer the the question in subject. Please help me out

I'm looking at the AUS/USD futures in CME and realized that the Outright futures execute as FIFO (F) but the SD (Calendar) and RT (Reduced Tick Calendar) execute as Pro-Rata (C)

Given that implied ins/outs are allowed between the outrights and the strategies, how is CME able to execute FIFO in the outright and Pro-Rata in the strategy?

My concern is that when implied out orders are created and they execute, they will execute (in the Legs) as FIFO. How can the Pro-Rata execution be given to the order in the strategy instrument as Pro-Rata? Since its implied out order has executed FIFO?

Same thing, the other way around for Implied In as well

Hope I've made sense with the above.

Thanks in advance

Regards,
Deen
 
Not sure. My knowledge is outdated, but I think for each "market"( outright and spread ), the native orders have priority over implieds except icebergs. So the algo will first fill the native order based on its matching rules and then the implieds. I guess the implieds are then matched based on the other algorithm, really not sure about this part. Would like to know as well.
 
TraDaToR said:
Not sure. My knowledge is outdated, but I think for each "market"( outright and spread ), the native orders have priority over implieds except icebergs. So the algo will first fill the native order based on its matching rules and then the implieds. I guess the implieds are then matched based on the other algorithm, really not sure about this part. Would like to know as well.
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They do place the implides below the native orders in the spreads and also the outrights. The problem then occours with implied in. When the implied in gets executed Pro-Rata, the outright order in the leg instruments need to be executed, but FIFO.. hmmm
 
Deen said:
Hi All,

I'm new here and here to get an answer the the question in subject. Please help me out

I'm looking at the AUS/USD futures in CME and realized that the Outright futures execute as FIFO (F) but the SD (Calendar) and RT (Reduced Tick Calendar) execute as Pro-Rata (C)

Given that implied ins/outs are allowed between the outrights and the strategies, how is CME able to execute FIFO in the outright and Pro-Rata in the strategy?

My concern is that when implied out orders are created and they execute, they will execute (in the Legs) as FIFO. How can the Pro-Rata execution be given to the order in the strategy instrument as Pro-Rata? Since its implied out order has executed FIFO?

Same thing, the other way around for Implied In as well

Hope I've made sense with the above.

Thanks in advance

Regards,
Deen
More...

The outrights are one symbol and the calendars are another. They don't execute off each other. In other words, the spreads are not scraping orders off the legs. You need to use an autospreader for that.

May I ask where you have read that the calendars spreads are not executed in time order entry?
 
Robert Morse said:
The outrights are one symbol and the calendars are another. They don't execute off each other. In other words, the spreads are not scraping orders off the legs. You need to use an autospreader for that.

May I ask where you have read that the calendars spreads are not executed in time order entry?
More...
Hi Robert,

What you said would in fact be the case if the legs and spreads are different symbols and they execute independently. However, I'm lead to believe that they execute off each other.

The reason I believe they execute off each other is because they have Implied Orders (in/out) enabled. This means liquidity from the legs being replicated in the spreads and liquidity in the spreads being replicated in the legs. This I found out from the "globex-product-reference-sheet" that CME publishes

The outright is FIFO (F) and the Spreads are Pro-Rata - this too i found from the "globex-product-reference-sheet".
 
Deen said:
They do place the implides below the native orders in the spreads and also the outrights. The problem then occours with implied in. When the implied in gets executed Pro-Rata, the outright order in the leg instruments need to be executed, but FIFO.. hmmm
More...

That is just a guess, but let's say there is a size of 100 on the bid in the spread market, constituted of 2 twenty lots in the spread and 2 30 lots as implied-ins. I would say if a 70 lots order comes to match, the 2 native orders are filled having priority on implieds and then the first placed order of the implieds would get priority over the other and grab all the remaining 30 lots( based on outrights FIFO ). Simply because it is easier to allocate based on the dedicated algo( of the outrights book ) than applying a different algo.

Again, I would call or email GCC to get the exact answer. Please post if you get it, I am interested.:)
 
Deen said:
Hi All,

I'm new here and here to get an answer the the question in subject. Please help me out

I'm looking at the AUS/USD futures in CME and realized that the Outright futures execute as FIFO (F) but the SD (Calendar) and RT (Reduced Tick Calendar) execute as Pro-Rata (C)

Given that implied ins/outs are allowed between the outrights and the strategies, how is CME able to execute FIFO in the outright and Pro-Rata in the strategy?

My concern is that when implied out orders are created and they execute, they will execute (in the Legs) as FIFO. How can the Pro-Rata execution be given to the order in the strategy instrument as Pro-Rata? Since its implied out order has executed FIFO?

Same thing, the other way around for Implied In as well

Hope I've made sense with the above.

Thanks in advance

Regards,
Deen
More...

That’s true for all FX and certain limited kinds of Eurodollar Spreads. If you are the aggressor and improve the bid/offer in FX spreads it’s my understanding that your order is then tagged priority FIFO.

You’ll find that CME order matching algorithms are product-specific. You can always call the CME FX product Dept - they’ll be responsive and helpful.

Exchange Spreads are implied orders that are dependent upon firm outright orders in the individual leg components in order for the matching algorithm to work.
 
Thanks for the response guys. I'm not sure I have access to CME helpline, so I'm stuck looking for answers here and other forums (if i find any)

So we're still looking to answer the original question. While looking at that, I also thought of the below

If implied orders are always stacked below the outright orders, then implied order will never get executions. Unless there are no outright orders at that price point (which is unlikely if an imlied can be generated at the price point). This too requires clarification
 
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