UDS - Allocation

At trade execution of a Covered options instrument, futures allocation is determined according to variables defined as described below.

Quantity

During the match process for orders on Covered instruments, CME Globex determines the Covering future quantity by multiplying the outright option or options spread or combination quantity by the absolute value of delta (change in option premium given a unit change in the underlying futures price) defined in tag 1017-LegOptionDelta, then rounding according to the rules specific to incoming and resting orders.

Side

CME Globex determines future Buy/Sell assignment according to the value specified in tag 624-LegSide (1 = buy 2 = sell) in the iLink Security Definition Request (tag 35-MsgType=c) message specified in the table.

Future Buy/Sell Assignment

Valid values for tag 1017-LegOptionDelta are as follows:

• Spreads and combinations - For a Covered options spread or combination instrument, CME Globex validates tag 1017-LegOptionDelta for a value between +0.01 and +40.00.

• Outrights - For a Covered outright option instrument, CME Globex validates tag 1017-LegOptionDelta for a value between +0.01 and +1.00.

Price

CME Globex validates that the future price specified in the Covered iLink 2 Security Definition Request is at a valid tick as defined in the Security Definition (tag 35-MsgType=d) message and performs a price reasonability check to ensure that the price is within a CME-specified number of ticks above or below the future's settlement price.

Covered UDS Futures Leg Assignment Examples

For Covered instrument trades, futures leg assignment occurs simultaneously with the trade execution. Futures allocations are determined by the cumulative delta future allocations of the resting order. Please note that in certain circumstances it may be possible for a resting order for a Covered instrument to receive zero futures.

The steps for calculating delta futures allocated per trade are shown below:

1. For each trade, the delta is calculated as a standard delta hedge.

2. The calculated delta is cumulative for each aggressor trade on a resting Covereds order.

3. For each trade, a futures leg is allocated only when the cumulative delta crosses a .5 threshold.

   • For example, a futures leg would be allocated for trades where the cumulative delta value equals or exceeds .5 ... 1.5 ... 2.5 ... 3.5 ....

The following examples show how futures are allocated in various resting and aggressor order situations each time the .5 threshold is crossed.

1. Aggressing order matches against one or more resting orders.

2. Using the appropriate algorithm, resting orders are assigned lots traded against the aggressor.

3. Calculations are then performed on each order to determine if they are assigned futures as a result of accumulated delta from the traded lots.

4. The total futures assigned to resting orders based on delta accumulation are also assigned to the aggressing order.

Example 1 - Covered Spread, Delta = 0.3, All Orders at Same Price Point

* - The value is 0 because there is no previous delta value for the first aggressor.

Example 2 - Covered Spread with 2 Futures at Different Deltas, Fut1: Delta = 0.3, Fut2: Delta = 0.5

* - The value is 0 because there is no previous delta value for the first aggressor.

Example 3 - Covered Spread, Delta = 0.3, Aggressor Becomes Resting, All Orders at Same Price Point

* - The value is 0 because there is no previous delta value for the first aggressor.
a - The aggressor order matched 5 with the resting order.
b - An order that arrived as an aggressor but remains as a resting order should be tracked as a resting order.

In Flight Mitigation and Delta Neutrality

If a client system has In Flight Mitigation (IFM) = ON, the following scenario can occur in which the Covered minimum quantity is allowed to be less for the replacing order than that defined in the market data Security Definition.

IF a client performs a cancel-replace for a resting covered,

AND a partial fill occurs during the Cancel/Replace process,

THEN the Covered order is allowed to be cancelled and replaced with an order having less than the minimum quanti