CME Group: Dark Order Book

Discussion in 'Trading' started by PocketChange, Nov 12, 2009.

  1. Obviously the issues regarding Flash orders have been hashed by the media. However, there is a data angle that still remains a mystery.

    The dark side of the limit order book contains all pending stop limit orders. This data is not published by CME in any of their public data feeds.

    If you are in this elite circle of market makers and are provided access to this data you gain a significant and unfair advantage.

    For example:

    ES @ 1090

    Level II Order Book shows:

    Qty Ask
    12 1091.50
    24 1091.00
    13 1090.75
    17 1090.50
    12 1090.25

    Qty Bid
    709 1090.00
    3111 1089.75
    1731 1089.50
    2511 1089.25
    1132 1089

    Dark side of the Order Book shows all pending Stop limit orders:

    Qty Bid
    8128 1091.50
    3249 1091.00
    1737 1090.75
    1779 1090.50
    1276 1090.25

    Qty Ask
    70 1090.00
    311 1089.75
    173 1089.50
    251 1089.25
    113 1089.00

    With access to the level II data you can see supply in the market is low. With access to the dark side of the order book you get to see all of the resting orders and gain the advantage of being able to instantaneously move size in and out with precision.

    CME should be required to publish this data for everyone.
  2. TraDaToR


    First time I hear about this... Can you provide a link?
  3. There is no link... Just an observation...

    The Media has been focused on a 30ms - 100ms time window in which resting orders are first disclosed to the liquidity providers and than published in their public data feed.

    The real game being played is the liquidity providers get to see all of the resting stop orders and their respective price levels.

    The visibility of this data creates an advantage where these privileged few can move orders in and out with precision knowing the exact quantity and price levels of all of the stops.

    With this data they have the ability to affect and manipulate small price rebounds by clearing out the resting orders, monitoring the subsequent stop order placements and closing their position on the resulting rebound.

    This is the same as having the opposing teams playbook. Playing this dark side price action game does not require tremendously large size. 100 lots can slide in and out with precision picking up a point inside of a few seconds.

    IMHO these are arbitrage opportunities created by inside information.
  4. TraDaToR


    Any evidence of this on CME? It happened in the past on eurex but the fund exploiting it was hacking eurex platform, not using privileged info.

    How do you know CME is giving its stop order book to MMs?

  5. This is kind of the definition of a flash order... They are showing resting orders before they are published in the CME public data feed.

    Everything that is shown in Level II is published. All of the resting stop orders are not published. What else can they possibly show them?
  6. I don't think anyone has access to that info . At least I hope so.
  7. The only data CME can show in advance would be the resting stop orders. Level II is already published.

    If the Market Maker takes the trade based on this flash data it gets published and the market price moves. If they pass on the trade the order sits as a resting stop order which they have knowledge of.

    This is not a conspiracy theory... just IMHO arbitrage created by inside information.

    This is not just CME Group... Any market with Flash Orders and contracted Market Makers.

    The Market Makers are contracted to quote each price level and provide liquidity. In exchange they gain access to valuable private data.
  8. jim c

    jim c

    I think your right. How would this benefit the CME? I work for a MM that does aprx 20 % of the options volume at the merc. As far as I know there are no market makers for the es. I just cant believe it. Jim
  9. These are all very public programs fully disclosed.

    • Maximum Order Flow Allocations
    The Top five market makers will receive order flow allocations.
    • Mass Quote Message
    All market makers will receive use of the Mass Quote Message function. You must be participating in a market maker program to use the Mass Quote Message.
    • Fee adjustments: The Top 10 market makers will have their CME Globex fees waived. The next
    five receive CME Globex fee discounts.

    Market Maker Functionality
    • Quoting Functionality
    - Mass Quotes for Market Makers - Authorized CME Globex platform Market Makers use Mass Quoting
    to submit bid/ask pairs and generate two-sided markets for multiple instruments for CME
    - Market Maker Protections - Market Maker Protections provide additional risk protection based on
    transaction events for Market Makers using Mass Quote functionality for CME Group options.
    - Quote Request - CME Group-approved Market Makers are authorized to submit indicative quotes
    via the Publishing Market Maker API.
    • Mass Quote Govenor
    - Mass Quote Governor limits the rate at which firms can submit mass quotes
  10. Noone has access to stop orders at CME. Market makers do not hold 'order books' like market makers in the pits. They run algos to generate markets. they're compensated with lowering clearing fees and front of order book priority.
    #10     Nov 13, 2009