This topic provides an overview of the types of User Defined Spreads which can be created and the message submission process for each type of UDS. For UDS message-level validation rules, see: UDS - Validation and Messaging Rules.
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Exchange-Recognized UDS
If the spread requested by the user is identified as one of the CME Globex standard futures spread or options spread types, that instrument will be created, assigned the recognized spread type code, and its availability disseminated to the market with the market data Security Definition (35=d) message.
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The order entry iLink Security Definition (tag 35-MsgType=d) message and the market data Security Definition (tag 35-MsgType=d) message are significantly different. CME Group strongly recommends using the TCP order entry iLink Security Definition (tag 35-MsgType=d) as an acknowledgment, and the market data Security Definition (tag 35-MsgType=d) REPLAY message as the instrument definition. |
Procedure to Create an Exchange Recognized UDS
- Client system submits an iLink Security Definition Request (tag 35-MsgType=c) message.
- If the iLink Security Definition Request (tag 35-MsgType=c) message is accepted, CME Globex sends the client system an iLink Security Definition (tag 35-MsgType=d) message with tag 323-SecurityResponseType=2 (accept).
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- If rejected, for example, due to a Paused or Closed market or because the options spread instrument already exists, the iLink Security Definition (tag 35-MsgType=d) message will contain tag 323-SecurityResponseTyp=5, Reject and the reject reason in tag 58-Text. No market data Security Definition (tag 35-MsgType=d) message is broadcast.
- If rejected due to invalid message format or content, the client system will receive an iLink Business Level Reject (tag 35-MsgType=j).
Example
In the following example, the user submits two vertical spreads in the iLink Security Definition Request message to create a user-defined Butterfly options spread. The iLink Security Definition Request (tag 35-MsgType=c) is submitted via iLink. The resulting market data Security Definition (tag 35-MsgType=d) message is broadcast over the appropriate Market Data Platform channel.
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Generic UDS
If the spread requested by the user is not identified as a CME Globex exchange recognized spread type, the instrument will be created exactly as the user requested, designated 'generic' (GN), and instrument availability disseminated to the market with the market data Security Definition (35=d) message.
Procedure to Create a Generic UDS
- Client system submits an iLink Security Definition Request (tag 35-MsgType=c) message containing one or more user-defined options spreads and one or more option outrights or unrecognized option spreads.
If the iLink Security Definition Request (tag 35-MsgType=c) message is accepted, CME Globex sends the client system an iLink Security Definition (tag 35-MsgType=d) message with tag 323-SecurityResponseType=2, Accept.
Accepted
- After accepting the iLink Security Definition Request (tag 35-MsgType=c) message and the creation of the options spread instrument, CME Globex broadcasts a market data Security Definition (tag 35-MsgType=d) message containing the tag 55-Symbol and tag 48-SecurityID code of the new instrument. The market data Security Definition (tag 35-MsgType=d) message contains the spread type code in tag 762-SecuritySubType.
- CME Globex also broadcasts a market data Quote Request (tag 35-MsgType=R) message for the options spread immediately following the market data Security Definition (tag 35-MsgType=d) message.
- The client system submits an iLink New Order (tag 35-MsgType=D) message for the newly created unrecognized spread type.
- CME Globex sends an Execution Report - New Order Acknowledgment (tag 35-MsgType=8, tag 39-OrdStatus=0) for the new order.
Rejected
- If rejected, for example, due to a Paused or Closed market or because the options spread instrument already exists, the iLink Security Definition (tag 35-MsgType=d) message will contain tag 323-SecurityResponseType=5 (reject) and the reject reason in tag 58-Text. No market data Security Definition (tag 35-MsgType=d) message is broadcast.
- If rejected due to invalid message format or content, the client system will receive an iLink Business Level Reject (tag 35-MsgType=j).
Example
In this example, the user combines a spread with an exchange recognized option outright and creates a CME Globex unrecognized spread type (GN).
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Recursive UDSA recursive spread is a UDS that contains at least 1 which is an existing user defined spread. Only one level of recursion is allowed (i.e., a UDS cannot contain a UDS that contains a UDS).
The following is an example of a recursive spread:
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Covered UDS
The term Covered denotes a User Defined instrument created by combining one outright option or options spread with one or more 'covering' outright futures instruments and a user-defined value for each futures leg which determines the quantity of futures allocation at trade.
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Delta measures the rate of change of an option premium with respect to a price change in the underlying futures contract. Delta is a measure of price sensitivity at any given moment. Not all options move point-for-point with their underlying futures contracts. If a futures contract moves .50 points and the option only moves .25 points, its delta is 50%; i.e., the option is only 50% as sensitive to the movement of underlying futures contract. The delta will change as an option moves from out-of-the money to at-the-money to in-the-money, approaching 100%. Deltas range from 0% to 100%. The delta of the underlying futures contract is 100%. |
Covered Attributes
- The total number of legs in the Covered instrument cannot exceed 40, up to 39 of which may be futures instruments.
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A Covered instrument is created at the client request subject to CME Globex validation of the proposed instrument.
Delta
When customers request the creation of a covered, CME Globex validates the proposed delta by performing a 'delta reasonability' check. During the match process for orders on Covered instruments, CME Globex determines the Covering future quantity by multiplying the outright option or option spread quantity by the absolute value of delta and then rounding according to the rules specific to incoming and resting orders.
Delta Neutrality
To ensure delta neutrality on covered options, CME Globex rejects iLink 2 New Order, Cancel/Replace, and iLink 2 Mass Quote messages violating the minimum quantity value sent in tag 562-MinTradeVol of the market data Security Definition (tag 35-MsgType=d) message.
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In response to:
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| Quote Acknowledgment (tag 35-MsgType=b), tag 368-QuoteEntryRejectReason = | Tag 58-Text |
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7112 | Quote exceeds limit. |
Expiration
A Covered instrument either expires with the earliest expiration of its component leg instruments or at the end of the trading session.
Valid Instruments
All listed CME Group outright options and options spreads are available for creating Covered spreads, and all listed outright futures contracts are available as a Covering future.
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The diagram below shows the message sequence for Covered instrument creation and notification of market participants of Covered instrument availability.
Example
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Procedure to a Submit Covered UDS
- A client system submits an iLink Security Definition Request (tag 35-MsgType=c) message.
- If the iLink Security Definition Request (tag 35-MsgType=c) message is accepted, CME Globex sends the customer system an iLink Security Definition (tag 35-MsgType=d) message with tag 323-SecurityResponseType=2 (accept).
Accepted - After accepting the iLink Security Definition Request (tag 35-MsgType=c) message and the creation of the Covered instrument, CME Globex broadcasts a market data Security Definition (tag 35-MsgType=d) message containing the Instrument Code and tag 48-SecurityID for the new Covered instrument.
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- If rejected, for example, due to a Paused or Closed market or because the Covered instrument already exists, the iLink Security Definition (tag 35-MsgType=d) message will contain tag 323-SecurityResponseType=5 (reject) and the reject reason in tag 58-Text. No market data Security Definition (tag 35- MsgType=d) message will be broadcast.
- If rejected due to invalid message format or content, the client system will receive an iLink Business Level Reject (tag 35-MsgType=j) message.
Futures Allocation with Varying Contract Sizes across Futures and Options Instruments
This example shows how, in the case of a UDS: Covered where the contract size of the options instrument differs from that of the futures instrument, CME Globex allocates the futures quantity for a trade.
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