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Dear CME Globex Customers,
CME has successfully implemented enhancements to the Pro Rata Allocation Algorithm in CME Eurodollar futures contracts entered
on the CME Globex electronic platform. The enhancements introduce an element of First-In, First-Out (FIFO) matching to the
current Pro Rata algorithm. This hybrid matching algorithm provides greater opportunity for traders who enter the market early
at a given price, while significantly increasing the system's efficiency by reducing the number of fill messages. The changes
to the algorithm are as follows:
- Treatment of Fractional Fills. If the allocation results in a fractional fill, CME Globex will continue to round down the fractional contract and it will
be combined with all other fractional fills for allocation during a second "pass" through the order book.
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- The remaining contracts resulting from fractional fills are allocated according to FIFO rules.
- Allocation of 1 Lot Fills. Any orders that would result in a 1 lot fill are not filled during the first pass through and these 1 lot fills are added
to the fractional fills to be allocated FIFO.
Please note: There are no changes to TOP order priority and the pro rata allocation of trades after filling the TOP order. Any order that
improves the best bid or offer in the book will be filled in its entirety before other orders are filled.
- Consider the following example:
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- Assume Orders 1 through 5 were entered in the following time sequence according to order number and represent the best bid
in the order book
- Assume an incoming offer to sell 60 lots at 97.04 is entered
- The following chart illustrates the CME Globex allocation:
Incoming order to sell 60 at 97.04
| Order Number |
Order Size |
Price |
1st Allocation |
2nd Allocation |
1st Allocation Calculation |
| Order 1 - TOP Order |
10 |
97.04 |
10 |
— |
TOP Order |
| Order 2 |
5 |
97.04 |
— |
3 |
(5/150) * 50 = 1.66667 |
| Order 3 |
20 |
97.04 |
6 |
— |
(20/150) * 50 = 6.66667 |
| Order 4 |
50 |
97.04 |
16 |
— |
(50/150) * 50 = 16.66667 |
| Order 5 |
75 |
97.04 |
25 |
— |
(75/150) * 50 = 25 |
- Order 1 is allocated 10 lots based on its TOP order status.
- Orders 2 - 5 are allocated fills according to the percentage they comprise of the remaining 150 contracts on the bid multiplied
by the 50 lots remaining of the incoming offer. All fractional fills are rounded down. As you can see in the gray shaded column
on the right, Order 2 would have resulted in a 1 lot fill (1.666 would be rounded down to 1 lot) and as a result is allocated
zero contracts on the first pass according to the new matching rules.
- The first pass through the order book results in the allocations illustrated above with 3 lots left to be allocated due to
rounding and the omission of the 1 lot fill.
- The remaining 3 lots will be allocated according to FIFO rules which will result in Order 2 receiving the 3 lot fill.
As you can see, the new matching rules are beneficial to the relatively smaller Order 2, which was quicker to the price than
Orders 3-5.
If you have any further questions, please contact Craig Bewick in Interest Rate Products at 312.648.3839, or please contact your CME Globex Account Manager at 312.634.8700 in North America or +1.44.207.623.2550 in Europe.
Thank you,
CME
CME Globex Account Management
312.634.8700
+1.44.207.623.2550
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