WSJ article about LIFFE/Eurex locals vs. Algorithmic models

BondTrader50 · Feb 20, 2007

Quote from Dogfish:

http://www.ecbotdirect.com/cbot/pub/cont_detail/0,3206,115+42577,00.html

The 10yr is still on first come first serve, queue system, 2 & 5s have gone to pro rata.

See the pdf in the link above for more details

Actually having skimmed through that article I linked, it looks like they've now reverted back to FIFO in the 5s
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Dogfish, The fives went back to price time in November.
The bids and offers blew up to 20-25k (most bullshit black box orders) with the pro rata. and it was f*cking up spread trades. Many many locals said fuk you to the 5 yrs. The participation level in that contract was dropping by the day. They made the right move by switching back.

BondTrader50 · Feb 20, 2007

Quote from dont:

Quote from Dogfish:
.

Here is an example of how Liffe's order-matching system can work: An algorithmic trading model places an order to buy 20,000 contracts of a short-term interest-rate contract at a set price on Euronext.Liffe. That order represents the bulk of the orders at that price. A local also wants to buy 100 contracts at that price but neither of these orders was the first to be entered in the market at that price.

When a third trader offers to sell 100 contracts at that price, the exchange usually automatically allocates most of that order against the 20,000-contract order, even if the local's order was placed before the larger trade. The big buyer's trading program then quickly pulls the balance of the order.

The trading strategy doesn't violate Liffe's rules, or those of Deutsche BÃ¶rse, because the algorithmic systems could, theoretically, be hit on their entire order. Because Liffe's own matching system is so complex, smaller traders aren't always disadvantaged because of the size of their orders.

The strategy makes it difficult for locals to get their trades completed. It also can leave them with partially filled orders, which in turn makes it difficult for them to trade on the relationship between contracts with different expiry dates, known as spread trades, as many locals do.

I've said it before will say it again "Strict Price Time priority"

This is just gaming the exchange rules.
When they have driven all the locals out the market who do they trade with each other, then watch volumes tank.
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I agree. Price Time is the only algorithm that levels the field. If the exchanges allow the locals to be pushed out, it will have a huge economic impact on their business and related businesses. It won't be much of a market when 50 computer programs are trading against each other. :eek:
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Dogfish · Feb 20, 2007

Quote from BondTrader50:

Dogfish, The fives went back to price time in November.
The bids and offers blew up to 20-25k (most bullshit black box orders) with the pro rata. and it was f*cking up spread trades. Many many locals said fuk you to the 5 yrs. The participation level in that contract was dropping by the day. They made the right move by switching back.
More...

I for one ditched my limits in there when it went pro rata and never looked back, I didn't realise it had returned to price time again, definitely the best system.

youngtrader · Mar 10, 2007

God Damn computers before long there won't even be any traders they will all just be fuckin computers

Spectre2007 · Mar 10, 2007

if your lucky enough to catch a asian fx comp at work, you can easily see the spikes at timed intervals, they paint such nice trendlines. And it becomes a one way street.

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WSJ article about LIFFE/Eurex locals vs. Algorithmic models

BondTrader50

BondTrader50

Dogfish

youngtrader

Spectre2007