NLX Trading Procedures. Version 1.6 (January 2015)

Transcription

1 NLX Trading Procedures Version 1.6 (January 2015)

2 Table of Contents Definitions Executive Summary Introduction Overview of the Market Market structure Interest Rate Products listed Participant Hierarchy The Designated Representative Trading on the Market Session States Pre Open The Uncross Open Session - Continuous Trading Post Close Closed Trading and Matching Halts and Restoration of Trading Price Limits Request for Quote and Pre-Negotiated Cross Transactions Strategies Settlement Prices Trade Cancellations Registration of Off Order Book Trades on the Trade Registration Facility Block Trades Asset Switch Trades EFP Trades Orders and Validity Order types Time Conditions Time-in-Force Ranking of Orders Order Modification Tick Sizes Implied Orders Appendix A: Session States for markets Appendix B: Markets and Trading Functionality an Overview Appendix C: Price Limit Spreads Appendix D: Minimum Tick Size Appendix E: Market Data and price concepts Appendix F: Position Accounts Appendix G: Product Specification Appendix H: Block Trades Appendix I: Asset Switch Appendix J: Exchange For Physical (EFP) Trades Appendix K: Procedure for unauthorised use of usernames and passwords

3 Definitions Asset Switch Asset Switch Executing Participant Automatic Order Matching BBO Block Trade Block Trade Executing Participant Business Day Central Counterparty (CCP) Central Order Book (COB) A type of Off Order Book Trade which is a two legged Trade consisting of the simultaneous execution of two off-setting Trades in two different futures Products. An Individual authorised by a Participant to arrange and execute Asset Switch Off Order Book Trades on its behalf. The process in the Central Order Book whereby sell and buy Orders that have been entered in the System by Participants are matched automatically in accordance with these Trade Procedures when the price, volume and other specifications of such Orders match. The Best Bid or Offer of an Order Book. A type of Off Order Book Trade which has a minimum volume requirement. An Individual authorised by a Participant to arrange and execute Block Trades on its behalf. Has the meaning given to it in the NLX Rule Book. Has the meaning given to it in the NLX Rule Book. The auto-matching order book which holds all active Orders entered into the System by Participants. Client Has the meaning given to it in the Rule Book. Crossed Orders Daily Settlement Prices Delivery Month Designated Representative Early Final Settlement Price EFP Executing An order book where some offers exist at a price below the price of some other bids or vice versa. This cannot exist during continuous matching as limit and market orders would be matched instantaneously. The price for each Expiry Month or Delivery Month, of a Product, calculated at a predefined time as per the relevant Product specification for that Product on each Business Day. The month the selling Participant must deliver the underlying asset of a Product, and the buying Participant must accept and pay for the underlying asset of the Product. An ITR appointed by the Participant, who is responsible for all trading activities conducted on the Market by the ITRs authorised by that Participant. The price for a Delivery Month, for a deliverable Long Term Interest Rate Product calculated at a predefined time as per the relevant Product specification on each Business Day during the Notice Period. An Individual authorised by a Participant to arrange and execute. 3

4 Participant Equilibrium Price EFP Off Order Book Trades. The price, calculated in accordance with paragraph 4.2 of these Trading Procedures. Exchange for Physical (EFP) Expiry Month Final Settlement Prices (FSP) FIX A type of Off Order Book Trade which is a two legged Trade consisting of the simultaneous execution of a futures Trade and a related OTC or other futures product not listed on the Market (i.e. either an OTC product or a related futures product listed on another exchange). The month a Product expires, and the Final Settlement Price is calculated. The final settlement price of a Product calculated when the Product expires. Establishes the following three messaging protocols: Market Data: Anonymous Market-by-Price; aggregated quantity and price of all Orders/Quotes activity at 50 best price levels, as well as trade activity and administrative messages. Order Entry: Access to Order Management and Trade Registration on the Central Order Book and Trade Registration Facility, respectively. Implied Order Individual Trading Representative (ITR) Instrument ITCH Limit Order Long Term Interest Rate Lot Size London Time FIX Reference Data: All delivery months/ expiries and strikes available for trading with associated last trade date. Implied liquidity determined from related Resting Orders on the Market. A specific individual user authorised by the relevant Participant to trade on the Market. The unique identifier for the individual elements of a Product; which include the NLX product code, delivery month, strike and put/call. Establishes the following two messaging protocols: Auxiliary Market Data: Reference Data, Trade Registration activity, Cancel Trades, RFQs, Post-trade and administration information. ITCH Market Data: Anonymous Market-by-Order; quantity and price of all Orders /Quotes activity at all price levels, matched trades and Pre-trade information. An Order in the COB which specifies a maximum purchase price or minimum selling price. Products where the maturity of the underlying is greater than one year (e.g. Long Gilt Futures). Volume increment specified by the Market. For all Products, the minimum lot size will be 1. Greenwich Mean Time (GMT) with adherence to British Summer Time (BST). BST begins on the last Sunday of March and ends on the last Sunday of October, during which time clocks are advanced 4

5 Market from GMT by one hour (GMT +01:00). All references to time in these Trading Procedures, and the Rule Book are references to London time; Has the meaning given to it in the NLX Rule Book. Market Data The data available to participants as described in Appendix E. Market Half Day A day on which the Market is open until 1pm only. Market Holiday A day on which the Market is not open for business generally. 1 Market Notice Market Order Market-To-Limit Order NLX Official Notice Period Off Order Book Off Order Book Trade Registration Open Session Opening Hours Order OTC Model Price Has the meaning given to it in the NLX Rule Book. An Order entered into the COB to sell or buy an Instrument at the best available price. The volume specified in that Order may trade against volume available through Resting Orders on the Central Order Book. An Order entered into the COB to sell or buy an instrument only at the best price, if any volume of that Order remains unmatched, the Order is converted into a Limit Order at the matching price. An appointed individual in the Market Operations team of NLX with specific authorization to manage relevant Market Operations procedures. For Long Gilt Products, the period during which the Seller can give notice to make physical delivery of the underlying bonds. The process of Order matching outside of the Central Order Book where Orders are executed as bi-lateral Trades. The facility for Order matching outside of the Central Order Book. Has the meaning given to it in paragraph 4.1 of these Trading Procedures. Means the period beginning with the time at which the System is available and ending at the End of Day (as described in paragraph 4.1 of these Trading Procedures). Has the meaning given to it in the NLX Rule Book. The theoretical settlement price based on OTC equivalent markets. Participant Post Close Session Pre-defined Strategy Pre Open Session Preliminary Settlement Has the meaning given to it in the NLX Rule Book. Has the meaning given to it in paragraph 4.1 of these Trading Procedures. An NLX specified Strategy that is defined and recognised by the System. Has the meaning given to it in paragraph 4.1 of these Trading Procedures. A provisional indication of the Daily Settlement Price, sent out to Participants of the Market before the Daily Settlement Price is finally 1 To be considered further since there may be some days where the Market is open generally but may be closed for certain Products (i.e. trading cannot take place for certain products). 5

6 Price Price Limits Price, Pro Rata Priority Price, Time Priority Product determined. The specified margin above and below the Reference Price of a Product outside of which Orders will be rejected in order to protect Participants from executing Trades at erroneous price levels. Orders ranked on price and then timestamp of the order arriving at the Matching Engine. However, matching is based on price and then volume associated with the resting Order. Orders are ranked by price and then timestamp of the order arriving at the Matching Engine and the matching of orders is based on price and then time of Order entry. A product listed on the Market. Product Holiday Quotes Reference Price Defined in Paragraph 4.8. Means a day on which the Market is open for business generally but is not open for trading in the relevant Product. Symmetrically bid and ask orders in a single expiry of a product by a single participant Request For Quote Resting Order Rule Book Short Term Interest Rate Strategy System Time of Agreement Time of Trade Execution Trade Trade Cancellation Trading Hours Trading Session A broadcast made by a Participant to other Participants of the Market indicating an interest in a price quotation of a specific Instrument or Strategy. Buy or sell Orders entered in the COB which have not been matched or cancelled. The legally binding document between the Operator and Participants that, amongst other things, sets out the terms on which the Market provides trading services to Participants. Products listed on the market where the maturity of the underlying is less than one year (e.g. Euribor Futures). A Trade consisting of the simultaneous execution of two or more Trades in Instruments with different Expiry/ Delivery months and/ or Strike. Has the meaning given to it in the NLX Rule Book. The time when a Trade is agreed. This must be recorded for the registration of Off Order Book Trades. The time when a Trade entered into the COB is automatically matched or when an Off Order Book trade is registered. Has the meaning given to it in the NLX Rule Book. The facility made available by an NLX Official when a Trade has been executed at an aberrant price, and will be cancelled as more fully described in paragraph 4.12 of these Trading Procedures. The Trading Hours for each Product are set out in "Chapter 4" and "Appendix G: Product Specification" of these Trading Procedures. The period of the Business Day during which Orders may be entered into the System; this includes the Pre Open and Open Sessions. 6

7 Uncross Volume Weighted Average Price (VWAP) The event when the Pre Open Session ends and Crossed Orders in the COB are matched based on the Equilibrium Price determination. The sum of each price traded within a defined period, multiplied by its associated volume, divided by the total volume. 7

8 1 Executive Summary NASDAQ OMX/NLX Group Inc. ("NASDAQ OMX"), through its UK subsidiary NASDAQ OMX NLX Limited (the "Operator"), operates a European MTF called NASDAQ OMX NLX ( NLX or the "Market") which is positioned to compete in the rapidly changing market for pan-european derivatives. Initially the Market facilitates trading in both the short and long end of the European and UK interest rate yield curves and offers both futures and options products which may be transacted both in the Central Order Book (COB) and Off Order Book. The Operator has engaged LCH.Clearnet to provide Central Counter Party (CCP) services. This trading and clearing partnership provides an innovative new offering that addresses the needs of clients and traders seeking an optimal environment for the automated, electronic execution of European Interest Rate products on one platform, which are then centrally cleared, using an innovative VaR Risk Management system, in a single clearing pool at LCH.Clearnet. 1.1 Introduction In particular, in addition to an overview of the Market, these trading procedures set out binding rules for Participants relating to: Participant Hierarchy Trading on the Market Registration of Off Order Book Trades Orders and Validity Implied Orders 8

9 2 Overview of the Market 2.1 Market structure The Market offers a wide variety of interest rate products across two services: Central Order Book Off Order Book Trade Registration All trades are cleared by LCH.Clearnet 2.2 Interest Rate Products listed The following products will initially be listed on the Market and may be executed in the Central Order Book or Off Order Book: Futures: 3 month Euribor Futures 3 month Sterling Futures Long Gilt Futures (4 %) 2 year Schatz Futures (6 %) 5 year Bobl Futures (6 %) 10 year Bund Futures (6 %) It is expected that Options on the above futures Products will be listed on the Market shortly after go-live. An up to date list of all products listed on the Market can be found in Appendix G: Product Specifications. 9

10 3 Participant Hierarchy Participant Designated Representative ITR ITR ITR Figure 1 Participant Hierarchy 3.1 The Designated Representative Each Designated Representative will be issued with at least one ITR username, FIX Order Entry Port and a valid password (the "ITR connection details") by the NLX Market Operations team. The NL X Market Operations team will generally direct all queries in relation to business submitted under these ITR connection details to the relevant Designated Representative. The Designated Representative is obliged to ensure, that all business activity conducted using the allocated ITR connection details is in compliance with the Rule Book and these Trading Procedures. The Designated Representative must also have the ability to alter or cancel any Orders submitted using such ITR connection details. The Designated Representative is responsible for the competence of any person utilising these ITR connection details. The Designated Representative or a nominated alternate must be contactable by the NLX Market Operations team at all times while these ITR connection details are being used. 10

11 4 Trading on the Market 4.1 Session States The table below shows the relevant session times for the Market on a normal Trading Day. All times set out below are London Time. For more information, see Appendix A. Table 1 Trading Sessions on the Market London Time Euribor Futures Sterling Futures Long Gilt Futures Bund/ Bobl/ Schatz Futures Euribor Options Sterling Options Long Gilt Options Bund/Bobl/ Schatz Options System available Start of Day Pre Open Session commences Continuous Trading Open Session commences Daily Settlement Price Calculation Market Close Post Close Session commences End of Day Post Close Session ends 05:00 06:00 07:00 16:15 21:00 22:00 05:00 07:00 07:30 16:15 18:00 22:00 05:00 07:30 08:00 16:15 18:00 22:00 05:00 06:00 07:00 16:15 21:00 22:00 05:00 06:00 07:02 16:15 18:00 22:00 05:00 07:00 07:32 16:15 18:00 22:00 05:00 07:30 08:02 16:15 18:00 22:00 05:00 06:00 07:02 16:15 18:00 22: Pre Open To commence the Pre Open Session a market message is sent out to all Participants subscribed to Market Data indicating the start of the Pre Open Session. During the Pre Open Session, Participants may submit, modify or cancel orders for Products with specified expiries, delivery months and strategies listed in the Central Order Book (COB). All Orders are submitted to the System, time-stamped and ranked Market-by- Price and then Market-by-Time. During the Pre Open Session, Participants also have the ability to create Strategies consisting of up to four options Products. All possible combinations of futures calendar spread, butterfly and condor strategies are predefined in the System. During the Pre Open Session, Participants are not able to execute Off Order Book Trades on any of the Products listed on the Market. Orders submitted during the Pre Open Session shall remain in the COB unmatched, until the Uncross which occurs at the end of the Pre Open session. 11

12 During the Pre Open Session, the market is transparent; all submitted or modified Orders with associated volume are disseminated to subscribed Participants. Implied Orders are not calculated or disseminated during the Pre Open session. The Equilibrium Price (EP) is calculated and disseminated after every update throughout the Pre Open Session. All Orders will be disclosed to Participants with their actual price during the Pre Open Session and a crossed Order Book will be disseminated. Order information will be available both as Market-by-Order (MBO) information via ITCH and as Market-by-Price (MBP) information via FIX. MBO information enables Participants to see individual Orders in the Central Order Book. The Market will disclose the full market depth at order level over ITCH. MBP information enables Participants to see aggregated volume and prices for each price level. The Market will disseminate aggregated volume over the top fifty price levels over FIX. Table 2 Example Schedule for a EURIBOR Futures Pre Open session with Open at 07:00 London Time Pre Open Uncross Order Management 06:00 07:00 07:00 Order management Order entry: Limit, Market-to-Limit and Stop Orders with associated valid time-in-force conditions GFD, GTC, GTD and IOC. Quotes with valid time-in-force GFD. Volume and Limit Price displayed Auto matching No Uncross Algorithm Equilibrium Price ITCH Multicast Market Data FIX Unicast Market Data Equilibrium Price (EP) calculated and disseminated after every update. Crossed orders matched on Central Order Book at Uncross. EP at Uncross disseminated as Opening Price. Anonymous Market-by-Order; quantity and price of all added, updated and removed Orders/Quotes. EP and associated quantities. Anonymous Market-by-Price; aggregated quantity and price of all added, updated and removed Orders/Quotes if contributing to/removed from 50 best price levels. EP and associated quantities. No Anonymous Market-by-Order; quantity and price of all added, updated, removed and executed Orders/Quotes. Anonymous Market-by-Price; aggregated quantity and price of all added, updated, removed and executed Orders/Quotes if contributing to/removed from 50 best price levels. EP and associated quantities. 12

13 4.3 The Uncross During the Pre Open Session, a two sided auction is organised, which ends with the Uncross, where Orders entered during the Pre Open Session on both sides of the Central Order Book are uncrossed automatically at the Equilibrium Price. Before the Uncross is performed, a check is made for whether or not it is needed (i.e. if there are any crossed prices). If the Uncross is not required, the session change is made without executing the Uncross and the BBO is established. The Opening Price is then established by the first match completed at the Uncross or in the Open Session (if there is no Uncross). The Equilibrium Price is the price at which the most quantity will execute with the lowest imbalance. Hence, following the Uncross there are no crossed prices left in the Order Book. Executions at the Uncross are labelled as such in the FIX and ITCH Market Data protocols. The Equilibrium Price will include the following Order Types: Limit Orders Market-to-Limit Orders Quotes The following are excluded from the calculation of the Equilibrium Price: Untriggered Stop Orders Implied Orders Fill-or-Kill Orders For the Market, the following methodology is used to calculate Equilibrium Price: Maximize Executed Quantity subject to the following, the Equilibrium Price shall be the price at which the execution of most quantity will occur. Minimize Surplus Quantity if there is more than one price at which the most Orders will be executed, then, subject to the following, the Equilibrium Price will be the price which would lead to the lowest imbalance. Let Market Pressure decide - if there is more than one price at which the same lowest imbalance is possible, subject to the following, the Equilibrium Price shall be determined by market pressure. Choose Price Closest to Reference Price - if there is more than one price which would be determined by market pressure, the Equilibrium Price shall be the price closest to the Reference Price. Note: It is possible to calculate Equilibrium Prices in Strategy Order Books, based on strategy orders entered directly into the Strategy Order Book. This is determined in the same way as equilibrium calculations for the Single Order Book with one exception; instead of the price closest to a Reference Price being selected for the Equilibrium Price in step four, the average of the highest and lowest eligible price is chosen as Equilibrium Price. Any crossed order matched at the Equilibrium Price sets the Open Price in the Open Session. The Central Order Book then moves from no-matching (during the Pre Open Session) to continuous matching (during the Open Session). At the end of the Pre Open Session, the System will remove unmatched or partially matched orders placed during the Pre Open Session with Time-In-Force set to IOC. Partially matched Market-to-Limit Orders with Time-In-Force set to GFD, GTD or GTC are converted to Limit Orders with price equal to the Equilibrium Price. 13

14 If trigger conditions are met by the Uncross, Stop Orders are triggered and executed. Stop Orders can be triggered by the Equilibrium Price, but do not contribute to the calculation of the Equilibrium Price. Once the Uncross is complete in the outright markets, the Strategy Order Books are uncrossed at their respective Equilibrium Price. Immediately following the Uncross of Strategy Orders, Implied Orders are activated for the Open session based on the outright BBO. 4.4 Open Session - Continuous Trading Ranking for all Orders entered prior to the Uncross and during continuous trading are based on Price and then Time. Matches are allocated based on Price and then Time, for Price, Time Priority, or Price and then the associated volume for Price, Pro Rata Priority, as per the relevant Product specification. Orders (with time conditions GTC and GTD) entered prior to the current trading day will keep their Time Priority. Table 3 Example Schedule for Market Open and Close for EURIBOR Futures Open Post Close Order Management 07:00 21:00 21:00 22:00 Unexecuted Limit and Stop Orders with Time-in-Force GFD, GTC and GTD following the Uncross enter continuous market, IOC Orders are cancelled. Unexecuted Quotes with Time-in-Force GFD enter continuous market. Order Entry, Quoting, Cancel and Cancel/Replace allowed. Orders are disseminated. Off Order Book Trade Registration. Auto matching Yes No Equilibrium Data ITCH Multicast Market Data Auxiliary Multicast Market Data FIX Unicast Market Data No Anonymous Market-by-Order; quantity and price of all added, updated, executed and removed Orders/Quotes. Off Order Book trades, cancel trades, RFQs and Settlement Prices. Anonymous Market-by-Price; aggregated quantity and price of all added, updated, removed and executed Orders/Quotes if contributing to/removed from 50 best price levels. Off Order Book trades, cancel trades, RFQs and Settlement Prices. Unexecuted Limit Order, GTC, GTD, can be amended or deleted. GTC, GTD Orders are entered back into the market at Pre Open of next Trade Day. Order Cancel messages. No No, Market-by-Order. 14

15 4.4.1 Automatic Order Matching Resting buy or sell Orders entered into the Central Order Book are matched against a corresponding incoming sell or buy Order in the Central Order Book, to create a matched trade. Each incoming Order is immediately checked for execution against Resting Orders on the opposite side of the Order Book. Orders can be executed in full or in part in one or more steps. Buy orders submitted into the Central Order Book with a buy price higher or equal to the sell Order with the lowest price (crossing prices), will be matched into one or more trades depending on the volume of the incoming Order and the volume and the price of the resting sell Order(s). The match price is determined by the price of the Resting Order in the Central Order Book. The matching process will attempt to fill as much as possible of the volume of the incoming sell or buy Order until the limit of the crossing prices is passed Matching Priority for Products Orders entered in the Central Order Book will be matched according to the relevant priority and allocation rules, see Table 4 below Best Price Setter definition The Best Price Setter is the first Order that offers a higher bid or a lower offer price in the prevailing market and betters the market price in the Central Order Book with an Order or Quote. The ITR which has established the best price level remains Best Price Setter at the given price level during the entire trading session (until executed) even if a new better price level has been established Price, Pro Rata Priority Algorithm definition for STIR and Schatz Futures The following defines the Price, Pro Rata Algorithm used on the Market; For the STIR and Schatz Futures at the given price level: 1. If a Best Price Setter exists, then allocate 30% of the incoming Order (rounding calculated quantity up) to the Best Price Setter, then: a. If the incoming Order quantity remains after the initial allocation to the Best Price Setter equals or exceeds 10 lots, then: i. first allocate the remaining part of the incoming Order according to Price, Pro Rata Priority (rounding calculated quantity down) to all remaining Resting Orders, based on total remaining quantity after the initial allocation to the Best Price Setter; and ii. then allocate any remaining part of the incoming Order according to Price, Time Priority beginning with any Resting Order(s) that was/were not allocated any quantity in the previous step; or b. If the incoming Order quantity after the initial allocation to the Best Price Setter is less than 10 lots, then allocate [any] remaining part of the incoming Order according to Price, Time Priority of all remaining Resting Orders, or 2. If no Best Price Setter exists, then: a. If the incoming Order quantity equals or exceeds 10 lots, then: 15

16 i. first allocate the incoming Order according to Price, Pro Rata (rounding calculated quantity down) of all remaining Resting Orders; and ii. then allocate the remaining part of the incoming Order according to Price, Time beginning with the Order(s) that was/were not allocated any quantity in the previous step; or b. If the incoming Order quantity is less than10 lots, allocate only according to Price, Time. See Table 4 below for more details Price, Pro Rata Priority Algorithm definition for STIR and Schatz Options For the STIR and Schatz Options at the given price level; 1. First allocate the incoming Order according to Price, Pro Rata Priority (rounding calculated quantity down); and 2. Then allocate the remaining part of the incoming Order according to Price, Time beginning with the Order(s) that was/were not allocated any quantity in the previous step See Table 4 below for more details Price, Time Priority Algorithm definition for LTIR Products LTIR Products, except Schatz Futures are ranked and allocated according to Price, Time Priority. Table 4 Matching Priority for Products Product Product Priority 1 Priority 2 Short Term Interest Rates Including Schatz Long Term Interest Rates Short Term Interest Rates Including Schatz Long Term Interest Rates Futures Price Pro-rata Futures Time Options Pro-rata Options Time All Orders and/or Quotes are public during the Trading Session. Order information will be available as Market-by-Order (MBO) information via ITCH, and as Market-by-Price (MBP) information via FIX. MBO information enables Participants to see each individual Order in an Order Book. MBP information enables Participants to see the aggregated volume at each price level. The Market will disseminate the top fifty price levels over FIX and the full depth over ITCH. All Orders and matched Trades are disseminated as real-time market data; all matches are anonymous i.e. counterparty information is not published. 16

17 4.5 Post Close At Market Close, auto-matching ceases and the session transitions to the Post Close; all GFD Orders and Quotes are automatically cleared from the Central Order Book. New orders cannot be submitted during the Post Close Session. During the Post Close Session, ITRs can modify and cancel any GTC and GTD Orders in the System. At the end of the Post Close Session, Order management ceases and the System is set to Closed. During the Post Close Session all Order updates are only disseminated to the respective ITR. Order information is not available via ITCH or FIX. Table 5 Example Schedule for EURIBOR Futures Post Close Order Management Market Close Post Close Session 21:00 21:00 22:00 Auto-matching ceases. GFD Orders and Quotes automatically cleared from the Central Order Book. Auto matching No No Equilibrium Data No GTC and GTD Orders in the Central Order Book can be modified and cancelled. No 4.6 Closed GTC and GTD Orders remain in the Central Order Book and information is only available to their respective ITR. Participants can remain logged in until the System is closed. 4.7 Trading and Matching Halts and Restoration of Trading Trading may be suspended by NLX Market Operations either for technical or regulatory reasons, or for reasons outside the Operators control. The Operator shall provide Participants with information on Trading and Matching Halts and the subsequent restoration of trading by system broadcast and/or a Market Notice or any other method that The Operator deems appropriate. Trading will be restored by the Operator when the Operator deems that it can be restored in an orderly manner. This may include the requirement to reduce or extend the current Trading Session, or not restoring trading until a subsequent Trading Day. Any changes to the timing of the Daily Settlement Prices or the method of the determination of the Daily Settlement Prices that may be required will be made at the discretion of the Operator. 4.8 Price Limits Throughout the Open Session, Price Limits for all Products will be calculated from a Reference Price; with the same margin allowed above the Reference Price for Bid Orders/Quotes and below the Reference Price for offer Orders/Quotes. The Reference Price for each discrete Expiry / Delivery month will be generated as follows: 17

18 During the Pre Open Session, Price Limits will not be activated. At commencement of the Open Session, the Reference Price will be last traded price from the previous trading session following the release of the Daily Settlement Price. If there was no matched trade after the release of the Daily Settlement Price of the previous trading session, then the Reference Price shall be the Daily Settlement Price. During the Open Session, the Reference Price for a Product is defined as: The last traded price, or bid price if the bid price is greater than the last traded price, or ask price if the ask price is lower than the last traded price. Both Outright and Implied Orders will be disclosed to the market if they are at or within the current Price Limits. If Implied Out orders are outside the price limit, they will be displayed at the Price Limit. Buy orders with prices lower than the lower Price Limit and sell orders with prices above the upper Price Limit are allowed to enter the system. On the other hand, buy orders with prices above the upper Price Limit and sell orders with prices below the lower Price Limit will be rejected. Orders with prices equal to the Price Limit will be accepted. Implied bids with prices lower than the lower Price Limit and implied offers with prices above the upper Price Limit are generated. Conversely, the price of an implied bid order shall be constrained to the upper Price Limit, while an implied offer shall be constrained to the lower Price Limit. Attempts to enter Orders and Quotes during the Open Session outside the prevailing Price Limits for the relevant Product will be rejected by the System. Strategy Limit Orders, and both Single and Strategy Market and Market-to-Limit Orders are not validated against price limits. The Operator will send a message to that Participant via the relevant ITR connection to inform him of the rejection. The permitted spreads for Price Limits for each Product will be determined from time to time by the Operator. The spreads maybe adjusted to reflect market conditions with the objective of preventing the execution of any Orders submitted to the System with manifest pricing errors and/or at unrepresentative price levels. The current Price Limit spreads for each Expiry / Delivery month for each product is published in Appendix C: Price Limit Spreads. 4.9 Request for Quote and Pre-Negotiated Cross Transactions A Request for Quote (RFQ) is a broadcast message sent by an ITR to all Market Data subscribers, calling for a price in a specific Product. The initiator of an RFQ can specify an expiry /delivery month or strategy (Pre-defined or Tailor Made) and various indications of interest such as side and quantity. An RFQ is sent to all Participants anonymously. When an RFQ is published, responding Participants may enter or update their Quotes or Orders in the Central Order Book; Trades will be matched in the Central Order Book using the normal matching rules defined in Section 4.4 Open Session - Continuous Trading. 18

19 The execution of pre-negotiated business and cross transactions is supported for all NLX Products. Matching business can be secured via pre-negotiation within the same Participant, with other participants or with Clients. The pre-negotiation and / or execution of a client order must comply with the Spirit of the Rules, Section 3.1 of the NLX Rule Book and cannot be detrimental to the interests of the client. The separate buy and sell orders which have been secured by pre-negotiation may be submitted to the Central Order Book provided the following: An RFQ must first be entered into the relevant expiry month or strategy, where a no bid and / or offer is present. The matching business may be entered into the Central Order Book after a period of 5 seconds for futures business has elapsed and no more than 30 seconds after the RFQ has expired No bids or offers should be entered into the Central Order Book to avoid the RFQ procedure Strategies Calendar Spreads, Butterfly and Condor strategies are predefined across all listed delivery months for futures Products. The System currently supports strategies of up to four legs, for Options, which can be created by an ITR throughout a Trading Day. Strategy Order Books are integrated into a Single Order Book, creating the Central Order Book, via Implied Orders. Strategy Orders are stored in the specific Strategy Order Book until they are executed, either by an outright Order or directly, in a strategy to strategy match. For a Strategy Order to match, all expiry months associated with the Strategy must be matched in full for the Trade to be completed Settlement Prices An innovative approach to determining Daily Settlement Prices (DSPs) and Final Settlement Prices (FSPs) has been adopted as set out below Daily Settlement Price (DSP) Futures Products Daily Settlement Prices for futures Products are calculated as specified below at 16:15, and disseminated shortly afterwards. All markets will continue to trade until the specified Market Close for each Product. After Market Close, the Daily Settlement Prices will be sent to the Clearing House, LCH.Clearnet. For Futures DSP calculations the Volume Weighted Average Price (VWAP) of trades executed within the last minute prior to the settlement calculation time are used. This price will be combined with the equivalent OTC market price for the same period (the OTC Model Price) in a pre determined weighting. The Volume Weighted Average Price (VWAP) is calculated as follows: (Price of Trade x Volume of Trade)/Total volume of Trades in the Period For example, if four trades were completed one minute prior to the DSP calculation time, the VWAP would be calculated as follows: Trade 1 Trade 2 Trade 3 Trade 4 Price

20 Lots Price*Lots (Price x Volume) = Total Volume = 170 (Price x Volume)/Total Volume= Daily Settlement Prices Weighting Rules for Futures Products The weighting between the calculated VWAP from the relevant futures market and the OTC Model Price is determined as follows, subject to the constraint that the DSP must fall in the range between and including the COB lowest Best Bid to highest Best Offer during the final minute prior to 16:15. Providing five trades or more have taken place in the final minute of trading prior to 16:15, the DSP is calculated using 100% VWAP Price; If 2 to 4 Trades have taken place the DSP is calculated as follows: 50% VWAP of trades in the final minute 50% OTC Model Price If 1 or no trade has taken place, the DSP is calculated as follows: 100% OTC Model Price In the event that a Daily Settlement Price cannot be determined either from trading activity or from the OTC Model Price, the Operator reserves the right to set the Daily Settlement Prices at its absolute discretion Final Settlement Prices (FSP) - Futures Products The Final Settlement Price for Euribor and Sterling Futures Products are determined as per the Product specifications, see Appendix G: Product Specification. In short, the Euribor Futures FSP is based on the 3 month EBF EURIBOR Offered Rate and the Sterling FSP based on the 3 month ICE LIBOR 1 Offered Rate. The Final Settlement Price for Long Term Interest Rate Futures Products will be determined as follows, subject to the constraint that the FSP must fall in the range between and including the COB lowest Best Bid to highest Best Offer during the final minute prior to the Last Trading Time. Providing five trades or more have taken place in the final minute of trading prior to the 1 ICE LIBOR is a trade mark of ICE Benchmark Administration. ICE BENCHMARK ADMINISTRATION LIMITED MAKES NO WARRANTY, EXPRESS OR IMPLIED, EITHER AS TO THE RESULTS TO BE OBTAINED FROM THE USE OF ICE LIBOR AND/OR THE FIGURE AT WHICH ICE LIBOR STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR DAY OR OTHERWISE. ICE BENCHMARK ADMINISTRATION LIMITED MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THREE MONTH STERLING FUTURES. 20

21 Last Trading Time, the FSP is calculated using the following weightings: 100% Volume Weighted Average Price (VWAP) of trades in the final minute If between two and four trades have taken place, the FSP is calculated as follows: 50% VWAP of Trades in the final minute of Trades in the final minute 50% OTC Model Price 21

22 If one or no trade has taken place, the FSP is calculated as follows: 100% OTC Model Price Final Settlement Prices will be displayed on the System and/or any additional data vendor system determined by the Operator. In the event that a Final Settlement Price cannot be determined either from, a data provider, trading activity or from the OTC Model Price, the Operator reserves the right to set the Final Settlement Prices at its absolute discretion Daily Settlement Prices on Market Half Days On Market Half Days, a full set of DSPs will be calculated for all Products at 12:00 hrs. London Time, using the standard methodology. The Market will close at 13:00 hrs. London Time Daily Settlement Prices Dissemination All DSPs may be disseminated on a provisional basis in the FIX and ITCH Market Data protocol. After provisional dissemination, the NLX Market Operations team may amend the Settlement Prices to ensure they are consistent with the market In the event that a DSP cannot be determined either from a data provider, trading activity or from the 3 rd party provider, the Operator reserves the right to set the DSPs at its absolute discretion. The DSPs will then be sent to the Clearing House LCH.Clearnet 4.12 Trade Cancellations The Price Limit system set out in Section 4.8 is designed to prevent the submission of Orders with significant pricing errors, and eliminate the need for manual intervention by an NLX Official to invalidate Trades. However, in some circumstances an NLX Official may conclude that a Trade has been executed at an aberrant price and will cancel the Trade. A Trade may be deemed to be aberrant by an NLX Official when: (a) (b) The automated Price Limits are not operational, and the NLX official concludes that the traded price would have been outside the Price Limits if they had been functioning; and The NLX official concludes that the prevailing Price Limits are not in line with fair value in the relevant Product. Fair value may be determined by observing bids, offers and trades that were entered into the relevant Product, in either/or the same or neighbouring expiries, before and after the trade in question. When a trade is cancelled the counterparties to the trade will be informed as soon as possible by telephone and by a broadcast message from the System, and at the latest before the close of the relevant Product. Data vendor services will be notified of any volume correction. 22

23 5 Registration of Off Order Book Trades on the Trade Registration Facility The following Trade Registration types are available for Off Order Book Trades: Block Trade Asset Switch Exchange For Physical (EFP)Trade Each Trade Registration type will have a unique flag which will be used as an identifier for Trade Registration. Trade Type Block Trade 1 Exchange for Physical 2 Asset Switch (Futures) 13 FIX Unique Flag Off Order Book Trades on the Trade Registration Facility may be organized and submitted during the Continuous Matching Session of the relevant Product. Trade Registration can be affected for single delivery months / expiries and strategies. 5.1 Block Trades All Products are designated as Block Trade Products for the Market. The Block Trade Registration Facility allows Participants to organize and execute trades considered large in scale compared to the average aggregated volumes at the BBO. Participants are permitted to organize Block Trades, providing they are a Block Trade Executing Participant or have in place arrangements for the execution of the Block Trade Product(s) via a Block Trade Executing Participant. A Block Trade Executing Participant is a Participant holding the appropriate trading right entitling him/her to trade the relevant Block Trade Product. Further details with regard to arranging Block Trades, including Block Trade Thresholds, are available in Appendix H to these Trading Procedures. 5.2 Asset Switch Trades The Asset Switch Facility is available for all Interest Rate Futures Products. Asset Switch Trades allow Participants to take opposing positions in, or transfer exposure between, two different Products simultaneously. The Asset Switch Facility may be used for all strategies of Interest Rate Futures Products. Participants are permitted to organize Asset Switches, providing they are an Asset Switch Executing Participant or have in place arrangements for the execution of Asset Switches via an Asset Switch Executing Participant. An Asset Switch Executing Participant is a Participant holding the appropriate trading right entitling him/her to trade the relevant Asset Switch Product. Further details with regard to arranging Asset Switch Trades are available in Appendix I to these Trading Procedures. 5.3 EFP Trades An EFP Trade allows Participants to arrange and execute Trades involving a future or options Product and a corresponding physical leg. The corresponding physical leg can be a variety of cash and OTC (Over-The-Counter) assets which may include: 23

24 Deliverable cash bonds Non-deliverable cash bonds Forward Rate Agreements (FRA) Vanilla OTC swaps Sale and Repurchase Agreements (Repos) OTC interest rate options Non NLX listed Short Term Interest Rate or Long Term Interest Rate Futures Contracts All Products are designated as Exchange for Physical Products on the Market. Exchange for Physical Participants are permitted to organize EFP Trades, providing they are an EFP Trade Executing Participant or have in place arrangements for the execution of EFP Product(s) via an EFP Trade Executing Participant. An EFP Trade Executing Participant is a Participant holding the appropriate trading rights entitling them to trade the relevant EFP Product. Further details with regard to arranging EFP Trades are available in Appendix J to these Trading Procedures. 24

25 6 Orders and Validity The following Order types, attributes and validities are available on the Market. 6.1 Order types The following Order types, time-in-force and time conditions are available for all Products: ID Order Types GFD (Good-for- Day) GTC (Good-till- Cancel) GTD (Good-till- Date) FOK (Fill-or- Kill) (IOC) Immediate or Cancel 1. Limit Order 2. Market Order 3. Market-to- Limit Order 4. Stop Order 1. Limit Order A Limit Order stipulates a maximum purchase price or minimum selling price. If not fully matched, the remaining volume of the Order is retained in the Order Book. The orders in the Order Book are ranked in descending buy-price order or ascending sell-price order and then by time priority. If the price specified by a Limit Order is not valid according to the permitted tick sizes, it will be rejected. The System will only execute Limit Orders at prices equal to or better (less than a maximum purchase price / greater than a minimum selling price) than the specified limit price. Limit Orders can be matched in part or in their entirety unless a FOK condition is attached to the Order in which case the Order must match in full or not at all. 2. Market Order Market Orders are accepted only during the Open session. A Market Order is an Order to sell or buy at the best possible price(s) and is therefore entered without a price. During continuous trading the time condition for a Market Order is always fill-or-kill (the order is matched in full or not at all) or immediate-or-cancel (any remaining volume not filled will be cancelled). Market Orders are never registered in the Central Order Book. This means that as long as there is an Order on the opposite side of the Central Order Book the Market Order will be matched irrespective of the price level. 3. Market-to-Limit Order A Market-to-Limit Order is an Order to sell or buy at the best market price. If the Order is partly matched, the remainder is converted into a Limit Order priced at match price. In contrast to a normal Market Order, the Market-to-Limit Order only executes at the best price level and, therefore, does not trade through volume available in the Central Order Book. Market-to-Limit Orders entered in a non-matching session state (i.e. Pre Open Session) form part of the Uncross. If the Equilibrium Price is established and the Market-To-Limit Order is matched, any quantity remaining after the Uncross will be stored in the Central Order Book as a Limit Order, at the Equilibrium Price. When the Equilibrium Price is established but the Market-To-Limit Order is not matched, the Order is automatically deleted. 25

26 During continuous matching (i.e. Open Session) a Market-to-Limit Order is immediately removed from the market if no match can be executed, e.g. if no Order exists on the opposite side of the Central Order Book. If the Market-to-Limit Order is partly matched, the remainder is converted into a Limit Order, and rests in the Central Order Book. 4. Stop Order A Stop Order is an Order with the trigger condition being the last traded price. Stop Orders generate a Market Order, Market to Limit Order or Limit Order in the Central Order Book once their trigger has been met. 6.1 Time Conditions 1. Good for Day (GFD) A GFD Order is valid until the Market closes. A GFD Order is active for the Business Day, and any non-executed portion will be cancelled upon the transition to the Post Close, i.e. when the Market closes. 2. Good Till Cancelled (GTC) The system supports GTC (Good till Cancelled) Orders in markets that have no specified limit to the maximum number of days an Order is allowed to stay in the book. A GTC Order will retain its original chronological order based on original entry time into the System. 3. Good till Date (GTD) A GTD Order is valid until a specified date in the future, up to a maximum of 255 days. If the Order is not matched during the Business Day it will be inserted again in the Central Order Book the next morning when the System opens. A GTD Order will retain its original chronological order based on original entry time into the System. 6.2 Time-in-Force 1. Fill-or-Kill (FOK) A FOK order is not stored in the Central Order Book at any time. If a FOK Order is not matched in full on entry, the order is cancelled. FOK orders can only be entered during continuous trading. 2. Immediate or Cancel (IOC) An IOC Limit or Market-to-Limit order will match with all the resting volume on the other side of the order book, up to the limit price, and cancel all the remaining volume. An IOC Market Order will match all available resting volume on the other side of the order book irrespective of the price, and then cancel any remaining unmatched volume of the IOC order. 6.3 Ranking of Orders Orders are ranked by Price and Time. However depending on the Product Specification, Orders are matched either by Price, Time Priority or Price, Pro Rata and Time Priority. 6.4 Order Modification The time priority of an Order is retained if the volume is reduced, and lost if the volume is increased or if the price is modified. 6.5 Tick Sizes Tick size is the smallest allowed price movement for a specific Product and, thereby, is the smallest possible difference between the buy and sell price in the Central Order Book. If the price specified by a Limit Price is not valid according to the allowed tick sizes, it is rejected by the System. See Appendix D for the minimum tick size for each Product. 26