Allocations on Multileg Orders

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Imported from previous forum

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[ original email was from John James - john.james@papa-kilo.com ]
Hi
This question was posted about 6 years ago but there were no replies - hopefully there is some more insight on this now.
I’d like to understand the best approach is to specifying post trade allocations on multileg orders - initially FX Swaps but this should also be valid for more complex multileg orders.

I’m looking at the 5.0SP2 specification but any help on use with previous version is appreciated.
Looking at the AllocationInstruction message there seems to be an InstrmtLegGrp component. There is also the AllocLinkID to link more than one allocation instruction together. Functionally I think it would be easier to use 1 allocation instruction containing all the legs within it but that would make the use of AllocLinkID redundant.

Any experience/thoughts/help greatly appreciated.

thanks
J

3

[ original email was from John James - john.james@papa-kilo.com ]
Hi
Thanks for responding - that does help somewhat but as you say what it means is you can’t allocate individual legs in different ways… however if you use the NewOrderMultileg message you can allocate the individual legs in different ways (as each LegOrdGrp does contain a LegPreAllocGrp).

So it looks as though you can preallocate the legs in different ways but not post allocate them. And going on from that you can’t use AllocationReports (or TradeCapture either - as that has the same limitation).

So what I guess I’m concluding is that even though the NewOrderMultileg does have allow individual leg allocations, it doesn’t seem to be supported across the other messages in the same manner.

Any comments appreciated.

thanks.

Hello,

It’s been a while since I looked at this, but if my memory serves me correctly, the InstrmtLegGrp part of the message is part of the general ‘instrument component block’ which the allocation message will use to describe the instrument, in exactly the same way as you would on, say, a new order single. The allocations themselves are stored in the allocation repeating group part of the message, just as they would be for a single-leg instrument. What this does mean of course is that you can’t allocate the individual legs in different ways (unless somebody since has identified a way to do this). Note that the AllocLinkId structure is there simply to support fragmentation of a single logical message into a number of physical messages (for systems that can’t handle very large messages). Every InstrmntLegGrp block would need to be the same across each of those fragments.

Hope this helps

Jim.

Hi
This question was posted about 6 years ago but there were no replies - hopefully there is some more insight on this now.
I’d like to understand the best approach is to specifying post trade allocations on multileg orders - initially FX Swaps but this should also be valid for more complex multileg orders.

I’m looking at the 5.0SP2 specification but any help on use with previous version is appreciated.
Looking at the AllocationInstruction message there seems to be an InstrmtLegGrp component. There is also the AllocLinkID to link more than one allocation instruction together. Functionally I think it would be easier to use 1 allocation instruction containing all the legs within it but that would make the use of AllocLinkID redundant.

Any experience/thoughts/help greatly appreciated.

thanks
J

4

Interesting !! Thanks for looking into that for me.

So the question that now begs is what my best approach is ? I’d like to try and make sure that whatever I do is as future proof as can be. Its going to either be that the leg-level allocation will be removed from the new-order-multileg, or that it will be added to the other messages. Unless I hear otherwise I’m going to see if I can work using a model based on the latter.

J

Right - I’ve taken a look at the 4.4 and 5.0 specs for multileg. You’re right, there is a leg-level allocation block on the new order multileg message (in addition to the usual allocation block - not sure why we have both). I don’t think anybody on the Allocations Working Group at the time of writing 4.4 was aware of the multileg allocation requirements so nothing was added to this effect to the post-trade allocation messages. This sounds like something we need to clean up.

Jim.

Let me have a look into that - I’m not familiar with the NewOrderMultiLeg functionality.
Jim.

Hi
Thanks for responding - that does help somewhat but as you say what it means is you can’t allocate individual legs in different ways… however if you use the NewOrderMultileg message you can allocate the individual legs in different ways (as each LegOrdGrp does contain a LegPreAllocGrp).

So it looks as though you can preallocate the legs in different ways but not post allocate them. And going on from that you can’t use AllocationReports (or TradeCapture either - as that has the same limitation).

So what I guess I’m concluding is that even though the NewOrderMultileg does have allow individual leg allocations, it doesn’t seem to be supported across the other messages in the same manner.

Any comments appreciated.

thanks.

Hello,

It’s been a while since I looked at this, but if my memory serves me correctly, the InstrmtLegGrp part of the message is part of the general ‘instrument component block’ which the allocation message will use to describe the instrument, in exactly the same way as you would on, say, a new order single. The allocations themselves are stored in the allocation repeating group part of the message, just as they would be for a single-leg instrument. What this does mean of course is that you can’t allocate the individual legs in different ways (unless somebody since has identified a way to do this). Note that the AllocLinkId structure is there simply to support fragmentation of a single logical message into a number of physical messages (for systems that can’t handle very large messages). Every InstrmntLegGrp block would need to be the same across each of those fragments.

Hope this helps

Jim.

Hi
This question was posted about 6 years ago but there were no replies - hopefully there is some more insight on this now.
I’d like to understand the best approach is to specifying post trade allocations on multileg orders - initially FX Swaps but this should also be valid for more complex multileg orders.

I’m looking at the 5.0SP2 specification but any help on use with previous version is appreciated.
Looking at the AllocationInstruction message there seems to be an InstrmtLegGrp component. There is also the AllocLinkID to link more than one allocation instruction together. Functionally I think it would be easier to use 1 allocation instruction containing all the legs within it but that would make the use of AllocLinkID redundant.

Any experience/thoughts/help greatly appreciated.

thanks
J

5

I think there’s a separate question as to why you’d need to regular allocation block on the new order multi-leg message (it seems somewhat duplicative to have both), so if you can think of a reason for that, then let me know. I wouldn’t actually recommend removing it, instead adding clarififying comments to the specification to indicate that only one or the other should be used.

There is a need to be able to allocate legs differently. If the strategy legs are on different exchanges, with different clearing houses, the instructions sent to the clearing houses will be different.

Also, the trading of a strategy may be to cover the risk taken by a client, so the first leg may be allocated to a client account, and the second leg on an internal account.