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Velocity Logic is designed to detect market movement of a predefined number of ticks either up or down within a predefined time. Velocity Logic introduces a momentary suspension in matching by transitioning the futures instrument(s) and related options as follows:

WHEN a lead month futures instrument triggers an event:

  • IF the lead month futures instrument belongs to an equities, metals, or FX instrument group, THEN the entire group will transition into the Pre-Open state; ELSE
  • the instrument will transition into the Reserved/Pause state

AND

the following actions occur in the corresponding options markets:

  • options auto-reserve functionality automatically pauses matching in the associated options and options strategies markets
  • all resting mass quotes are canceled when the auto-reserve functionality is initiated.

This Reserved State is maintained for a few seconds after the futures instrument has resumed trading. During the reserved period, customers can submit, modify and cancel orders. Mass quotes are rejected.

Allowing the user community this momentary opportunity to enter, modify, or cancel orders in this situation provides the ability to re-establish the proper market prices. The market data Security Status (tag 35-MsgType=f) message is used to communicate the instrument status during the Velocity Logic event.

In the event that a Fill and Kill, Minimum Quantity, or Market order is determined by CME Globex to trigger Velocity Logic:

  • an Execution Report - Order Acknowledgment is sent
  • an Execution Report - Order Cancel is sent (tag 35-MsgType=8, tag 39-OrdStatus=4); Fill and Kill and Minimum Quantity order eliminated (tag 35-MsgType=8, tag 39-OrdStatus=C)
  • The market will remain open

Click below to view a video overview of Velocity Logic:

 

The following examples describe the Velocity Logic event and the use of the Security Status message.

State

Description

Market Is Open

When a price moves the market up or down through a predefined number of ticks within a predefined time period, the Velocity Logic event is triggered. If the order is a Minimum Quantity, FAK or Market order, it is rejected via an Execution Report-Reject message (tag 35-MsgType=8, tag 39-OrdStatus=8), and tag 58-Text=Order price submitted/derived violates Velocity Logic Threshold, and the market remains open.

Market Is Reserved

If the execution price has moved the market up or down outside a predefined tick value within a predefined time period, the Velocity Logic functionality is triggered and the instrument is placed in reserved state for a predetermined amount of time. A Security Status (tag 35-MsgType=f) message is generated to notify the market of this state.

When the market is in a reserved state, any external event, such as a market close or manual market intervention, will cause the market to transition from the reserved state and proceed with processing of the external event.

Market Reserved Activities

While the market is in a reserved state:

  • A timer is activated that determines the length of time the market will be in reserved state. Time may vary.
  • A counter is activated that counts the number of times the Indicative Opening Price verification will be performed.
  • An expanded price range is determined for verification of the Indicative Opening Price value.
  • When time has elapsed, verification is performed on the current Indicative Opening Price. If the Indicative Opening Price is inside the new expanded no-review range, the market reopens. The Indicative Opening Price is communicated via the Indicative Opening Price data block (tag 35-MsgType=X, tag 269-MDEntryType=4, tag 286-NoMDEntries=5).

Market Reopens

The Security Status (tag 35-MsgType=f) message is generated.

If the Indicative Opening Price is outside the new expanded range, the instrument remains in the reserved state for another time interval and the Indicative Opening Price verification is performed again. This process continues until either the market is adjusted within the Indicative Opening Price range or the predefined maximum number of iterations has been performed.

While the options market is in the Pause state, clients can cancel resting orders. No other actions are allowed. During the Pause state CME Globex cancels all options quotes. Once the futures Velocity Logic event has been resolved, the options market transitions from 'Pause' to 'Open' with no indicative opening price; price discovery occurs via customer quote submission.

 

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