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Launch of Eurex Improve

Release date: 27 Nov 2019 | Eurex Exchange

114/2019 Launch of Eurex Improve

Eurex Circular 114/19

1.    Introduction

With this circular, Eurex Deutschland (Eurex) announces the launch of our new client flow facilitation service: Eurex Improve. 

Eurex Improve provides our Trading Participants with a tool, suitable to guarantee their customers full execution of their orders below minimum block trade sizes at the best price available at Eurex. Execution at the best available price is ensured as Eurex Improve is fully integrated in Eurex’s orderbook and benefits from the orderbook’s pricing competition. 

The goal of Eurex Improve is to generate additional trading volumes by providing advantages to all involved stakeholders:

  • The customer, on whose behalf an Improve request is triggered, is guaranteed full execution of their entire order size at a determined price or better;
  • The Trading Participant, who initiates an Improve request, automatically guarantees best execution for their customer’s orders; 
  • All other Trading Participants, by means of reacting to an Improve request, have the opportunity to engage with customer flow which otherwise might have been executed without their participation. 

Eurex Improve will be launched for all equity options and all equity index options on 3 February 2020. Already today, Eurex Improve is available for testing in the Eurex T7 simulation environment. In addition, Eurex intends to offer a dedicated Eurex Improve simulation exercise on 20 January 2020. Details of this exercise will be published in a separate Eurex circular in due time. 

The parameters used in the simulation environment are, with one exemption, identical to the parameters that Eurex will apply in production. Different to the parametrisation in production, the price improvement periods in the simulation environment will be set to five seconds. This deviation aims to better visualise the functioning of Eurex Improve.

Eurex Improve is a voluntary service offered by Eurex. Any Trading Participant who facilitates customer flow can initiate an Improve request. Any Trading Participant, independent of whether they facilitate customer flow, can react to an Improve request. 

Production start: 3 February 2020

2.    Action required

No additional contractual agreements or applications are required for Trading Participants to use Eurex Improve. 

Eurex Improve is readily available in the T7 GUI or can be accessed via ETI. For further details regarding the functional implementation please refer to the final Release Notes of T7 Release 7.0 which can be found on the Eurex website www.eurexchange.com under the following link:

3.    Details of the initiative

Eurex Improve match events are executed in a three-step process, consisting of initiation, price improvement and execution:

  • Initiation: The starting point of an Improve execution is a client agreeing with their respective Trading Participant on all details of a trade such client seeks to execute in the orderbook. Based on this agreement, the Trading Participant enters two orders into Eurex’s trading system which together form the Improve request. The two orders are identical (the product, the price and the quantity are the same) except for their buy/sell indicator.
  • Price improvement: Once the Improve request has been received by Eurex, Eurex informs all Trading Participants about the imminent Improve execution. In particular, Eurex will announce the product, the price and the quantity of any Improve request prior to its execution. Directly after this announcement the price improvement period starts. During this period, all Trading Participants (except for the trader who initiated the Improve request) can submit additional orders to the orderbook, in an aim to participate in the execution of the customer order.
  • Execution: After the price improvement period has ended, the Improve request is executed in the orderbook. If no additional orders were provided during the price improvement period, the order of the Trading Participant initiating the Improve request automatically guarantees full execution of the customer order. If additional competitive orders on the side of the orderbook opposite to the customer order were provided, the execution of the customer order may be split across different price levels and Trading Participants, in accordance with the predefined matching rules known to the market.

Eurex Improve will be launched with the following parameters:

ParameterCalibration
Disclosure of quantity of Improve requestQuantity will be disclosed mandatorily.
Disclosure of price of Improve requestPrice will be disclosed mandatorily.
Disclosure of side of Improve requestSide will not be disclosed mandatorily but can be disclosed voluntarily.
Minimum quantity of Improve requestMinimum quantity will be 1 lot for all products.
Maximum quantity of Improve requestMaximum quantity will equal minimum block trade size for each respective product.
Duration of price improvement periodPrice improvement period will be set to be 150 milliseconds.
Share for Trading Participant who initiated Improve request, on tolerable price levelsOn each tolerable price level, initiating Trading Participant will receive 40% of the volume executed on this price level.
Maximum tolerable price distanceWill be set to 25% of the standard price range1.
Matching modelImprove allocation scheme will be the same as the allocation scheme in the orderbook for each product.

1 The standard price range is derived from the quote spread table (e.g. used by Eurex for price reasonability checks), which is defined for each product and can be retrieved via ETI.

While it is Eurex Improve’s goal to generate additional trading volumes, Eurex is aware that the service’s full integration in the orderbook could also potentially risk a cannibalisation of existent orderbook flow. To address this risk, Eurex has implemented dedicated thresholds to monitor the extent to which existing orderbook flow may be diverted via Eurex Improve.

In particular, Eurex defined the following thresholds for all products belonging to liquidity classes 1 and 2:

  • A maximum of 9 percent of orderbook customer flow per product across all Trading Participants can be routed via Eurex Improve, and 
  • A maximum of 4 percent of orderbook customer flow per product across all Trading Participants can be executed against Trading Participants in their capacity as initiating Trading Participants who initiated Improve requests2.

2 If additional customer flow is observed, these thresholds may be increased to 13 percent and 6 percent, respectively.

Based on this monitoring, Eurex will decide on a potential re-calibration of Eurex Improve if necessary.

Eurex Improve is addressed in a newly introduced Section 2.7 of the Trading Conditions of Eurex Deutschland. For further information, please refer to the 19th Amendment Ordinance to the Conditions for Trading at Eurex Deutschland, which can be found on the Eurex website www.eurexchange.com under the following link:

Further information

Recipients:All Trading Participants of Eurex Deutschland and Vendors
Target groups:Front Office/Trading, Middle + Backoffice
Contact:Kirstin Meissner, Market Structure & Regulation, T +44-207 8 62-72 55, kirstin.meissner@eurexchange.com
Related circular:Eurex circular 036/18
Web: Eurex Improve
Authorized by:Randolf Roth
 

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