1. Introduction
The current Order-to-Trade Ratio (OTR) limit regime works well during normal market periods. However, during extreme events, the limits are too restrictive. In the past, Eurex accounted for this shortcoming by manually increasing the limits when necessary. This manual intervention was to some extent not predictable for Trading Participants.
To improve the situation, Eurex will introduce a so-called volatility factor into the OTR limit regime. The volatility factor will scale up the limits once the volatility increases above pre-defined thresholds.
Please see the tables in Attachment 2 for the new OTR parameters.
The changes will come into effect on 1 December 2023.
Also with effect from 1 December 2023, the Annexes to the Contract Specifications for Futures Contracts and Options Contracts at Eurex Deutschland will be amended to implement the changes. Please see the Attachment for details.
2. Required action
We recommend analysing previous TR100 Order to Trade Ratio Reports for the last months. Upon request, Eurex will provide back-testing results.
3. Details
To overcome the problem of non-predictability of manual interventions, Eurex will introduce a “volatility factor” into its OTR limit regime (multiplied to the floor). The volatility factor consists of a monotonic increasing step function and will increase the limits with increasing volatility. Thresholds and step levels are contained in the Attachment. In general, the volatility factor has four steps: 1, 1.5, 2, 4 which reflect the nonlinear impact of changes in volatility on transaction rates. The volatility indicator is calculated based on the overnight return and the intraday realized variance using the steps outlined in Attachment 1.
The volatility indicator will be calculated per product type for one benchmark product.
Details on the parametrization can be found in Attachment 2 in the second table (page 3f).
Report TR100 Order to Trade Ratio has been enhanced with T7 Release 12.0 to reflect this change. The columns VOLATILITY INDICATOR, VOLATILITY FACTOR VOLUME and VOLATILITY FACTOR COUNT will contain the corresponding values. The second table in the Attachment contains the necessary parameters.
Report TR103 Eurex Daily OTR Parameter has also been enhanced with T7 Release 12.0 to reflect the additional parameters.
Furthermore, to ease the identification of traders/sessions which cause OTR violations, Eurex has introduced with T7 Release 12.0 the TR106 Order to Trade Ratio Detailed Transaction Report. For every case where a Participant was close to or had an OTR violation, the report contains the corresponding information of the User and Session (based on the CB069 Transaction Report). All cases with less than 30 percent headroom are included.
Details on the Order-to-Trade Ratio can be found in the OTR white paper on the Eurex website www.eurex.com as of the effective date under this link:
Rules & Regs > Order-to-Trade Ratio
The full version of the updated Annexes to the Contract Specifications for Futures Contracts and Options Contracts at Eurex Deutschland will be published on the Eurex website www.eurex.com as of the effective date under this link:
Rules & Regs > Eurex Rules & Regulations > 03. Contract Specifications
Attachments:
- 1 – Calculation steps for the Volatility Indicator
- 2 – Updated sections of the Annexes to the Contract Specifications for Futures Contracts and Options Contracts at Eurex Deutschland, valid as of 1 December 2023
Further information
Recipients: | | All Trading Participants of Eurex Deutschland and Vendors |
Target groups: | | Front Office/Trading, Middle + Backoffice, IT/System Administration |
Contact: | | client.services@eurex.com |
Web: | | Rules & Regs > Order-to-Trade Ratio |
Authorized by: | | Jonas Ullmann |