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An implied price order is a futures an order CME Globex identifies as existing in A) the spread market based on orders in the outright market (referred to as IMPLIED IN) OR, B) an order CME Globex identifies as existing in the outright market based on orders in the spread market (IMPLIED OUT).

First generation implied orders are created at prices sufficient to trade. If these first generation implied orders are not at a large enough quantity to fill an arriving order, then CME Globex builds second-generation implied orders until the quantity of the arriving order is completely satisfied.

The following examples

Note

Implied quantity follows these basic rules in all markets:

  1. Implication requires at minimum two orders in related markets in the proper combination.
  2. Implied bids do not trade against implied offers.
  3. Implied bids can exist at the same or inverted price levels with implied offers. When this occurs, CME Globex ceases dissemination of the implied bid; however, the bid is still calculated and can be traded against.
  4. Implied OUT quantity will not disseminate when the leg value of the included spread is in a ratio greater than one. The price and quantity are still calculated and can be traded against.

Examples

5. Implied quantity in futures markets does not have time priority.

6. Implied quantity is not available:

    • When the market is not in a matching state (e.g. Pre-Open)
    • When implied calculation has been suspended (e.g. CME Globex detects a trade occurring outside of limits as a result of implication)

The examples below show how implied orders are constructed in one market based on orders in another.

Implied Overview

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This brief video introduces the way implied functionality provides liquidity across markets.

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Implied Overview Part 2

This video provides a more complex example involving implied spread matching.

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Example: Implied IN Orders

Implied IN spread orders derive from existing outright orders in individual legs. Below is an example for an implied bid in a spread created from outright orders (known as an implied IN order).

 

QTY

BID

ASK

QTY

QMU1

15

74150

 

 

QMV1

 

 

75500

10

QMU1-QMV1

10

-1350

 

 

In this implied IN example, a quantity of 10 spreads are available from the 74150 bid in September 2011 (QMU1) to spread against the 75500 offer in the October 2011 ask (QMV1) to create the two legs of quantity 10 in an implied bid for the Sept-Oct. 2011 spread (QMU1-QMV1).(i = implied order)

In this scenario, the Ask for 10 in September at 9500 and the Bid for 5 at 9450 in December create an implied Ask at 50 for 5 in the Sept-Dec spread order book.

U (September)
BidAsk


950010








Z (December)
BidAsk
 9450 5









U-Z (Sept-Dec)
BidAsk


505i








Example: Implied OUT Orders

Implied OUT outright orders are derived from a combination of an existing spread order and an existing outright order in one of the individual underlying legs. These two orders are used to create a contingent outright order on the other underlying leg of the spread. The following  following is an example for an implied bid in a leg an outright order book (known as an implied OUT).

 

QTY

BID

ASK

QTY

QMU1

15

74150

 

 

QMV1

10

75500

 

 

QMU1-QMV1

 

 

-1350

10

In this implied OUT example, the 10 quantity of the Sept-Oct. 2011 spread (QMU1-QMV1) to create bid for 10 contracts in the October 2011 outright (QMV1) implies a bid quantity of 10 in QMV1.

Because the CME Globex system can process orders sequentially in an entire group, both of these implied quotes can be displayed at the same time. If an order arrives to trade with one of the implied quotes, the executed trade will cause the other implied quote to be eliminated.

When an implied spread order is filled, multiple execution reports are returned to the client for each fill. One execution report is sent for the implied spread with the CME default account as the counterparty and one execution report is sent to each counterparty per leg in the spread.(i = implied order)

In this scenario, the Ask order in Sept-Dec spread for 5 at 50 (i.e., simultaneously sell 5 September contracts and buy 5 December contracts) and the Bid order in December for 5 at 9450 create an implied Ask order in the September order book for 5 at 9500.

U (September)
BidAsk


95005i








Z (December)
BidAsk
94505









U-Z (Sept-Dec)
BidAsk


505








Stop-Limit Orders for Implied-Eligible Instruments

The processing of stop-limit orders is slightly different for Implied-enabled instruments. After a stop-limit order is triggered, it is treated as a newly arriving limit order. It can be executed at all price levels better than or between the trigger and the limit prices. This behavior differs from the processing of non-implied instruments, which are executed only at price levels between the trigger and the limit prices.

Additional Implied Functionality Topics

The following topics contain more information on this topic:

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