- Determine all PQ sources potentially eligible for aggressing quantity.
- Include the aggressed instrument as a PQ source.
- Treat each source as one large order quantity.
- Run the aggressing quantity against all steps of the relevant algorithm in order not including Leveling. Residual FIFO (unallocated left over quantity from a pro-rata distribution) is accounted for . Do not go to steps beyond a Pro Rata step. Residual quantity from the Pro Rata distribution is addressed in step 6 below.
- At each step of the algorithm used in step 4, allocate quantity to each source as required. Do not allocate volume to individual orders.
- Example - an aggressed market has a Top order good for 20 lots. Remove 20 lots from the aggressing quantity and allocate it to the aggressed instrument source.
- Example - a source composed of a spread and an outright contributes 10% of the available volume of an aggressed instrument. During a Pro Rata step, allocate 10% of the aggressing quantity to the source.
- With regard to Pro Rata allocations are always rounded down, with any remainders getting :
- Generally, the quantity to be allocated is rounded down. Any remainders are added to sources on a FIFO basis.
- There is an exception during Predetermination with ICS ratio spreads (legs in a ratio other than 1:1). Examples include Treasury ICS and Soybean Crush spreads. Please see below.
- After completing the last step of the predetermination, sum all quantities allocated for each source.
- If the source is comprised of two instruments (as in step 5b), the volume is allocated to each instrument in like quantities. Example -
- Now distribute lots allocated to each source to the instruments that make up each source. In the event of a spread with a ratio other than 1:1, you must divide and multiply to get the true quantities going to the instruments.
- Example – a source composed of a calendar spread and a leg receives 25 lots, therefore both the spread and the leg must each be allocated 25 lots.
- Example – a source composed of a TUF 05-04 and ZF contributes an implied OUT to ZT. 30 lots are allocated to this ZT source. The TUF receives 6 lots, and the ZF receives 24 lots.
- Predetermination is now complete.
- Now run the full algorithm (all steps, in order) once per instrument using the values calculated in step 5 through 8 as aggressing orders for the relative instruments.
|Concerning step 6b above, there is a round up rule with ratio spreads. These sources are calculated first before allocation goes to other sources. The round up is then checked against the leg being aggressed to determine which way to round. Using the TUF 05-04 as an example, let’s assume that this spread in conjunction with resting quantity in its legs implies to both the ZT and the ZF (these implieds will not be visible via market data). If the ZT source (from the TUF and ZF) was allocated 2 lots, round this quantity to zero and work on the other sources. If it receives 3 lots, and there is enough quantity not allocated, round source volume UP to 5 lots, which will eventually result in the TUF getting 1 lot and the ZF getting 4 lots. If the ZT source were allocated 8 lots, and there is enough quantity not allocated, round source volume UP to 10 lots, which will eventually result in the TUF getting 2 lots and the ZF getting 8 lots.|