Let's make the rolls pro rata!

Discussion in 'Financial Futures' started by arabianights, Mar 16, 2011.

  1. I just sent this email out to a few exchanges... if ya agree with it, please get in touch with em too.

    And of course, feel free to argy-bargy here :)


    I write this primarily thinking of govvy and index rolls - but my arguments can be extended to calendar spreads in any FIFO markets!

    FIFO is great is for the outrights, for sure. No worries there

    The rolls, on the other hands, are more like STIRs, really. (both indexes and bonds). It's completely possible to upgrade your algorithms to be pro rata (or time priority pro rata or whatever) in the rolls while still FIFO in outrights - for example if there's 20 on the offer implied from the roll, and someone lifts it, then that is a 20 lot trade for the calendar spread handling algo.

    No expert on commodities but one imagines similar applies.

    This is win win for absolutely everyone. Locals like me will do the rolls more as we can compete. Rolls will have greater ranges and greater liquidity, benefiting paper. And there'll almost certainly be more volume, benefiting yourselves!

    Finally, I sent this to LIFFE CME and Eurex (and I'll chuck in ICE even though they're irrelevant to me - but I did play on ECX for a bit and possibly still have an ITM - and everyone else loves the GSCI roll right?) so you won't even have to worry about patent infringement!

    Not expecting this to be implemented tomorrow, but please do give it some thought :)

    Kind Regards,

  2. I iz with you, Arab...
  3. Anyone else? FFS come on lads
  4. bone

    bone ET Sponsor

    Sure, let's game the order queue and kill that market just like the Euribor.
  5. How is euribor killed? Seems pretty decent to me. We can do time pro rata rather than pure pro rata if you want...

    The rolls are killed - this is a way to revive them :)
  6. bone

    bone ET Sponsor

    The CBOT rolls are dead because the CTD supply has been quite abundant for the US (Fed printing press), and for Eurex they enacted a provision several years ago to print more OTR deliverable in lieu of a squeeze.

    The only thing that pro-rata promotes is order stuffing and queue gaming.

    If pro-rata was the big solution for more exchange volume and trading range in a given product, then there would be no FIFO. If pro-rata could in the end help CME's share price then Globex would be all pro-rata all the time.

    Size goes to resting orders. Brokers shop around what is tangible and what they know they can get done.
  7. Disagree completely....both pro rata and FIFO have a place in our markets and as most would probably agree a mix of both seems to be the most fair for all participants.

    Consider grain spreads....in a full carry market someone can step up for thousands upon thousands of spreads and take all they want for virtually a risk free trade without anyone else getting filled at that price. At least the pro rata algorithm allows the smaller lots to get a piece of the orderflow.

    I think the best solution to get rid of a lot of the BS in most of these spreads is to charge a fee on such a % of non executed orders.
  8. bone

    bone ET Sponsor

    Young, your point regarding order matching is taken.

    Pro-rata, however, will not do anything to perk up the Treasury roll when the underlying deliverable does not warrant it.
  9. bump
  10. StirCrazy


    I couldn't agree more Mr. Nights. FIFO has no place in spreads where there is a significant interest.

    Time prioritised pro rata is the way forward... show me where to sign...
    #10     Jun 13, 2011