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Market-Making Options

Market-Making in Options

Valid until 31.12.2017

Any Trading Participant can act as a Market Maker for options and benefit from reduced fees. All trading members are automatically checked to evaluate whether they fulfill Market Maker obligations and are able to take part in the Market-Making programs and packages that are offered. Only quotes and mass quotes traded via the M-account are taken into consideration.

For selected futures products, so-called "Designated" Market-Making is available. Market Makers take on defined obligations to increase liquidity in their chosen product. Subject to their performance in fulfilling their obligations, members are rewarded with a reduction in their fee levels.

 

Market-Making (options)

Market Making in options is available in the form of “Building Blocks”. Market Makers are authorized to enter quotes in all option contracts. The following Building Blocks are available, whereas not all Building Blocks may be available for all options (see Eurex Circular 050/17):

Basis Building Block Market Making (BBB)

Basis Building Block Market-Making (BBB) (i.e., the former Permanent Market Making, PMM) is available for all options. The obligations are:

  • Continuous quotation for a set of exercise prices for a pre-defined number of expirations
  • Products in which participants would like to fulfil the BBB Market Making requirements can be selected individually

Package Building Block Market Making (PBB)

Package Block Market Making (PBB) (i.e., the former Advanced Market-Making, AMM) is available for pre-defined packages of equity and/or equity index options as well as options on fixed income futures. The obligations are:

  • Continuous quotation for a set of exercise prices for a pre-defined number of expirations and options
  • Participants can fulfil the PBB in any package offered by Eurex.

Strategy Building Block Market Making (CBB)

Strategy Building Block Market Making (CBB) (i.e., the former “Response to quote requests in option strategies (complex instruments) – SWMM (Strategy Wizard Market Making)”, see Eurex Circular 145/13) is available to options products assigned to Liquidity Class 1 and Liquidity Class 2.

Larger Size Building Block Market Making (LBB)

Larger Size Building Block Market Making (LBB) is available to Equity Index Options, Equity Options, and Interest Rate Options – except for those products where rebates have been communicated via circular and which deviate from rebates in the Price List (“non-affected products”).

The LBB requirements are fulfilled if the BBB requirement in that product is fulfilled whereas a valid quote counts into the performance only if it features a size that is equal to or greater than the size required by the minimum size of the BBB – multiplied by a factor – on both legs of the quote. The respective factors may differ per Liquidity Class and are displayed in the table below.

Tighter Spread Building Block Market Making (TBB)

Tighter Spread Building Block Market Making (TBB) is available to Equity Index Options, Equity Options, and Interest Rate Options – except for those products where rebates have been communicated via circular and which deviate from rebates in the Price List (“non-affected products”).

The TBB requirements are fulfilled if the BBB requirement in that product is fulfilled whereas a valid quote counts into the performance only if it features a spread that is equal to or smaller than the spread required by the maximum spread of the BBB – multiplied by a factor – on both legs of the quote. The respective factors may differ per Liquidity Class and are displayed in the table below.

Size Factors  and Spread Factors

The following factors for the fulfilment of the Larger Size Building Block and Tighter Spread Building Block are introduced per product group and Liquidity Class. These are multiplied with the Basis Building Block requirements in order to obtain the relevant size and spread requirements.

Product Group

Building Block

LC1

LC2

LC3

Equity Index Options

Size Factor

1,4

1,3

1,1

Spread Factor

0,65

0,75

1,0

Equity

Options

Size Factor

1,2

1,2

1,1

Spread Factor

0,75

0,80

1,0

Interest Rate Options

Size Factor

2,0

2,0

1,1

Spread Factor

0,65

0,65

1,0

Table 1: Multiplication factors for Size Building Block and Spread Building Block

The size requirement in Interest Rate Options is based on the PMM Basis requirement.

Market Making in Euro-denominated Money Market Options

Regular Market-Making (with the former acronym RMM) applies only to euro-denominated Money Market options. The obligations are:

  • Response to quote requests in all exercise prices and all expirations
  • Products in which participants would like to act as Regular Market Makers can be selected where available

The former Regular Market Making should not be confused with the MiFID2 Regulatory Market Making (new acronym: RMM), which will come into place on 3rd January 2018, subject to approval of the relevant bodies.

Good quotes

Quotes are double-sided and must have a bid/ask spread equal to or narrower than the maximum quote spread. Quotes entered by Market Makers are binding, and orders can be matched at these prices. All quotes that fulfill the Market-Making obligations have to be entered on the Market-Making accounts (M-accounts). Only trades posted to the M-accounts are eligible for refunds of transaction and clearing fees.

Wide quotes

Market Maker can also enter quotes with an arbitrary bid/-ask spread that exceed the maximum spread. Wide quotes will not:

  • Define a price at which market orders may be matched
  • Interfere with the protection of market orders
  • Be considered in Market Maker performance measurement
  • Flow into the best quote price and quantity calculations in inside market

Quotes that have lost one side via complete matching will also be flagged as "Wide Quotes". That is, a "good quote" may turn "wide" if one side is fully matched.

Risk protection for Market Maker

The Eurex® system provides Market Makers in PMM and AMM with various features for system-based risk protection. With these tools Market Makers can significantly constrain operational and market risks.


Market Maker protection tool
The Market Maker protection tool is aimed at preventing too many simultaneous trade executions on quotes provided by a Market Maker, offering additional control of the market risk.


The basic principle can be envisioned as a counter, counting the number of traded contracts per product on Market Maker's quotes within a time frame of some seconds that the Market Maker can define.


Once the time has elapsed the counter is set to zero and restarted. If the counter exceeds a threshold level defined by the Market Maker, all remaining quotes are put on hold. Market Makers can define three threshold values in the counter:

  • Volume: total number of contracts
  • Vega: absolute number of contracts purchased reduced by the number of contracts sold
  • Delta: absolute number of (long calls + short puts) - (short calls + long puts)

Market Maker obligations

 
      • 31 Aug 2017
    • Market Maker requirements at Eurex Exchange

      Download
      • 19 May 2017
    • Market-Making obligations at Eurex Exchange (valid from 02 October 2017)

      Download
      • 24 Sep 2015
    • Market-Making schemes at Eurex Exchange (valid until 01 October 2017)

      Download
 
 
 

Market-Making quote parameters

 
      • 18 Dec 2017
    • Market Making Quote Parameters

      Download
      • 18 Dec 2017
    • Market Making Quote Parameters Delta Version

      Download
      • 24 May 2016
    • File description - MMPM Parameters on Common Report Engine

      Download
 
 
 
 
 
 
 

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