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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If the spread requested by the user is not identified as an exchange recognized spread type, the instrument is created exactly as the user requested, designated 'generic' spread type code (GN), and a notice of instrument availability disseminated to the market.
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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).
Accepted
3. 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.
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If a client system submits a valid Security Definition Request in a non-open state, the RFQ will not be generated. Also:
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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-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 The following is an example of a recursive spread: |
Side | Quantity | Leg |
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Buy | 1 | OZQF0 P9818 |
Sell | 2 | OZQF0 P9812 |
Buy | 1 | UD:FO: BO 0506960673 |
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See UDS - Recursive Spread Type Display Name. ExampleStep 1: a user creates a three-leg SA UDS as:
Step 2: a user uses the resulting Step1 SA and adds two more legs so that all five legs are consecutive. The two added legs would be:
The resulting 5-leg SA would be one level of UDS recursion (i.e., the 5-leg UDS uses one simpler version of itself, which is the 3-leg SA from Step 1). Step 3: Globex will not allow a second level of UDS recursion. For example, the SA that has 5 legs from Step 2 cannot, in turn, be used to create a longer SA (e.g., adding a sixth leg of +1 LNE June 2025 320C would be rejected). If the user wanted to create the 6-leg SA UDS that could either: a) create the 6-leg SA UDS or b) use the 3-leg SA UDS from Step 1 and then add the other three legs, which would be one level of recursion. |
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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.
A covered spread expires at the end of the trading session in which it has been created.
All products available for Covered construction are listed at: http://www.cmegroup.com/product-codes-listing/.
All listed outright futures instruments are available as a covering future.
A Covered instrument is created at the client request subject to CME Globex validation of the proposed instrument.
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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.
In response to:
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Execution Report (tag 35-MsgType=8), tag 103-OrdRejReason = | Tag 58-Text |
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2115 | Order quantity is outside of the allowable range'Quantity: <Requested Quantity> Max: <Maximum configured for contract> Min: <Minimum configured for contract>’ |
7613 | Disclosed quantity cannot be smaller than the minimum quantity 'Disclosed: <Requested Quantity> Min: <Minimum configured for contract>’ |
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.
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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).
AcceptedAfter 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.
CME Globex will also broadcast a market data Quote Request (tag 35-MsgType=R) message for the new Covered instrument immediately following the market data Security Definition (tag 35-MsgType=d) message.
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The auto-generated Quote request type is limited to the standard Quote Request (i.e., does not support side, quantity or indicative). |
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Tag 167-SecurityType is not required for the following message types submitted on or against a Covered Instrument:
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5. If the Covered instrument is traded, CME Globex transmits the corresponding iLink 2 Execution Report - Fill Notice and market data messages.
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No market data Incremental Refresh (tag 35-MsgType=X) message is sent for the future leg. |
To obtain displayed leg price Security Definitions (tag 35 - MsgType=d) of both the covered UDS and corresponding outright future must be used. Multiply LegPrice (Tag566) of the covered UDS with DisplayConversionFactor (Tag9787) of the corresponding outright future.
Rejected
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
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Using Natural Gas options (contract size = 2500 mmBtu) covered by Henry Hub Penultimate futures (contract size = 10,000 mmBtu), the following shows how CME Globex handles the contract size differences.
UDS: Covereds for Natural Gas Derivatives | |||
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Product | iLink: tag 1151-Security Group | Contract Size | Multiplier for UDS: Covered Futures Allocation |
Henry Hub Penultimate futures | NPG | 2,500 mmBtu | -- |
Natural Gas options (American) | ON | 10,000 mmBtu | 4 |
Natural Gas weekly options (American) | ON1-ON5 | 10,000 mmBtu | 4 |
Natural Gas options (European) | LNE | 10,000 mmBtu | 4 |
Natural Gas financial weekly options | LN1-LN5 | 10,000 mmBtu | 4 |
Natural Gas (Henry Hub) daily options | KDB | 10,000 mmBtu | 4 |
Natural Gas short-term options | U01-U31 | 10,000 mmBtu | 4 |
Natural Gas (Henry Hub) last-day financial options | AE7 | 10,000 mmBtu | 4 |
Example
Customer creates a UDS: Covered with a Natural Gas option (European) LNE leg covered by a Henry Hub Penultimate future NPG leg and a customer-submitted delta value of 0.40.
The futures allocation quantity would be 1.60
Futures allocation quantity = customer-submitted delta value * (option contract size/future contract size)
Futures allocation quantity = 0.40(10,000/2,500 mmBtu)
A UDS: Covered trade of 100 LNE options would be allocated 160 NPG covering futures.