Imported from previous forum
[ original email was from Danny Shobrook - dzshobrook@dial.pipex.com ]
Hi
I have been discussing the following issues with FIX for derivatives, which centre around instrument description:
-
How could you describe an option on a future? eg an option on a forward rate agreement or a swaption.
-
How could you express strategy trades? List orders initially seem attractive but how could you then do an IOI for a calendar spread or a quote?
Any ideas?
[ original email was from Jim Northey - jorthey@up.net ]
Here is the separate thread that has been going on for a couple of days on these issues:
Excellent recap on strategies.
The concern I have with the approach outlined is that it seems to be closely mapped to a physical implementation of strategy processing.
It appears to me that the FIX organization has tried to steer clear of the specification of required services - a strategy / product identification service in this case (Please correct me if my assumption regarding the FIX organization is inaccurate). I doubt that we can, from our position within the community, make such a change in direction.
The proposed implementation maps well to the LIFFEConnect API - but may not map as well to other APIs to other electronics derivatives trading systems and as stated earlier, presupposes a service that does implicitly extends the FIX protocol beyond an application level, session level protocol.
The issue of standardized identification of strategies is problematic in that there are multiple names for strategies and the strikes and expirations on a given strategy can vary. The identification service would have to determine if the strategy was previously defined. Then there is the need to develop a query mechanism to determine what strategy products have been defined. Also, the number of strategy products for a given option class can be very undaunting. A cursory analysis can reveal that there can be 30 or more option strategies for each series (as the first leg). As we all know, this space is sparcely populated - hence the choice of using dynamic assignment for strategies. (This becomes problematic for an exchange, such as the CBOE with 60,000 active series). Also, once this information is created - unless it is done so algorithmically - it must be maintained - hence requiring a quality of service committment from the strategy / product identification service - which the FIX community at large may not want to impose or be dependent upon.
The problem is not easy to resolve under the current FIX specification - should we look at adding an additional set of messages for strategies?
Support for electronic order routing of strategies is extremely important to the industry - hence the efforts here are important.
-----Original Message-----
From: Paul Lindley [SMTP:Paul.Lindley@liffe.com]
Sent: Wednesday, April 07, 1999 3:39 AM
To: ‘John Armstrong’; Danny Shobrook; jnorthey@up.net; will.walter@db.com
Cc: oconnell@cboe.com; will_walter@dbna.com
Subject: RE: FIX and Strategies
Gents,
I think we need to define our terminology since we may be talking about
something slightly different.
When I talk about strategies, I mean atomic strategies where the constituent
legs cannot be executed independently. Its only when we consider atomic
strategies that it becomes clear that the List message doesn’t work.
A strategy can still be partially filled, an example…
Buying the September 1999 - December 1999 calendar spread on the Euro
interest rate future is the same as simultaneously buying an amount of the
September 1999 future and selling the same amount of the December 1999
future.
Hence if I ask for 100 lots of the Sep99 - Dec99 spread to be bought, a
partial fill may come back to say that 25 of those lots have been filled
with 75 left to buy. But never can a partial fill come back to say that 50
lots of Sep99 have been bought but only 10 lots of Dec99 sold.
The problem with the List message is that it only covers order entry. At
LIFFE, strategies have a price and so we need to IOI them to indicate to
everybody that the price is. We would need a List IOI message adding. Same
for the Quote Request message. In the trading pit it is usual for traders to
walk into the pit and ask what the price of a strategy is - which in an
electronic market is a quote request. We would need a List Quote Request and
a List Quote message.
One final thing to note is the pricing of the strategy which the List
message cannot gracefully handle. At LIFFE, people might look to buy a
Sep99-Dec99 spread at a price of 10. They do not care what the prices of the
Sep99 or the Dec99 are, just that the difference is 10. The List message
requires that each leg in the strategy is given a price rather than a price
for the whole strategy.
In short and to summarise my view :-
- Although first impressions seem favourable, the List message is of
little use for strategies. - Using Symbology has the advantage of few (maybe none?) changes to
the FIX messages although it is ‘nasty’. - The main remaining problem highlighted by you all is how to make
sure that all parties can safely agree what a symbol means.
I feel we’re getting close!
Regards,
Paul
PS
Posting on web site is no problem for me.
-----Original Message-----
From: John Armstrong [SMTP:johna@ms.com]
Sent: Tuesday, April 06, 1999 7:30 PM
To: Danny Shobrook; jnorthey@up.net; will.walter@db.com
Cc: oconnell@cboe.com; Paul Lindley; will_walter@dbna.com
Subject: RE: FIX and Strategies
see below...
> -----Original Message-----
> From: Danny Shobrook [mailto:dzshobrook@dial.pipex.com]
> Sent: Tuesday, April 06, 1999 1:11 PM
> To: John Armstrong; jnorthey@up.net; will.walter@db.com
> Cc: oconnell@cboe.com; Paul.Lindley@liffe.com;
will_walter@dbna.com
> Subject: Re: FIX and Strategies
>
>
> The issues with strategies are as I understand them:
>
> 1) They are to be traded as a whole, so you really want executions
to come
> back treating the - say - calendar spread as one instrument with
maybe
> partially fills on the whole spread rather than fills on the
underlying
> options making up that spread. You don’t want the Jan part all
filled
> without the Dec part being worked at all.
I disagree. A trader would want to see whatever partial fill as soon
as it
is
available to him. If one wishes to see the whole, that’s up to their
system
to display it as such.
>
> 2) IOIs and quotes. Getting the best price and the current order
book
> depth.
>
> Strategies are closer to an instrument in their own right rather
> than equity
> basket trades which are more attuned to the current list order
model.
>
> Danny
>
> PS is it OK for me to post some of this?
>
> -----Original Message-----
> From: John Armstrong <johna@ms.com>
> To: jnorthey@up.net <jnorthey@up.net>; will.walter@db.com
> <will.walter@db.com>
> Cc: oconnell@cboe.com <oconnell@cboe.com>;
dzshobrook@dial.pipex.com
> <dzshobrook@dial.pipex.com>; Paul.Lindley@liffe.com
> <Paul.Lindley@liffe.com>; will_walter@dbna.com
<will_walter@dbna.com>
> Date: 06 April 1999 17:53
> Subject: RE: FIX and Strategies
>
>
> >I prefer using the List message to send spread orders, although I
see the
> >advantages to having
> >one message as long as it’s not restricted to a hard number of
legs. I
> agree
> >the List Execute
> >message is meaningless here and I’m sure can be removed as a
requirement.
> >
> >This is an interesting thread, I’d encourage you to post it on
> the Options
> >discussion page to
> >save the archive.
> >
> >John
> >
> >> -----Original Message-----
> >> From: Jim Northey [mailto:jnorthey@up.net]
> >> Sent: Tuesday, April 06, 1999 12:04 PM
> >> To: ‘will.walter@db.com’; jnorthey@up.net
> >> Cc: oconnell@cboe.com; dzshobrook@dial.pipex.com;
> >> Paul.Lindley@liffe.com; will_walter@dbna.com; ‘johna@ms.com’
> >> Subject: FIX and Strategies
> >>
> >>
> >> Unfortunately, we have a firm requirement to support options
> >> strategies. Is
> >> it possible to develop a near term strategy (prior to FIXML)
that has a
> >> fixed number of legs (possibly 4) that would be “flattened”
> into a single
> >> message. Maybe we could using Fix tag numbering to help support
> >> this using
> >> part of the number to designate attributes of legs.
> >>
> >>
> >> -----Original Message-----
> >> From: will.walter@db.com [SMTP:will.walter@db.com]
> >> Sent: Monday, April 05, 1999 9:31 AM
> >> To: jnorthey@up.net; will.walter@db.com
> >> Cc: oconnell@cboe.com; dzshobrook@dial.pipex.com;
> >> Paul.Lindley@liffe.com;
> >> will_walter@dbna.com
> >> Subject: Re: Will
> >>
> >> Correction: Jim’s e-mail is jnorthey@up.net
> >>
> >>
> >> ______________________________ Reply Separator
> >> _________________________________
> >> Subject: Re: Will
> >> Author: Will Walter
> >> Date: 4/5/1999 9:00 AM
> >>
> >>
> >> I spoke to Gerald O’Connell, CIO at the CBOE, and Jim
Northey, an
> >> independent consultant working with Gerald. They are
> looking to put
> a
> >> FIX api out to the public which will include strategies.
> >>
> >> I think it would be worth while that you talk about your
> goals with
> >> them. Perhaps we can come up with some standard way of
> using FIX for
> >> options.
> >>
> >>
> >> Here are the email addresses and numbers
> >>
> >> oconnell@cboe.com 001-312-786-7134
> >> jnorthey@cboe.com
> >> Paul.Lindley@liffe.com
> >> dzshobrook@dial.pipex.com 011-44-131-667-6003
> >>
> >>
> >>
> >>
> >> ______________________________ Reply Separator
> >> _________________________________
> >> Subject: Re: Will
> >> Author: dzshobrook (dzshobrook@dial.pipex.com)
> >> Date: 4/1/1999 3:34 AM
> >>
> >>
> >> Hi
> >>
> >> Yes it reminds me of the comment of one of the ECB members on
the Euro
> >> reaching a “historic” low against the dollar, he says when a
> currency is
> >> only three months old all values are historic highs or lows!
> >>
> >> Spoke to Will, he agrees that strategies are important for
STIRS and
> >> probably generally, although less so for equity options. He
has been
> >> speaking to CBOT about this. List orders seem to be everyone
> >> initial first
> >> reaction to this but when you think of it they rapidly fade
away.
> >> It would
> >> not be effective to send five messages for a strangle - four
> list orders
> +
> >> list execute. I cannot see a clean way of doing options on
futures or
> >> strategies in the current flat format that FIX messages have.
> You can do
> >> it
> >> in XML but the descriptions get very big very rapidly. I
> honestly cannot
> >> see away of not separately instrument description from FIX
> messages. It
> >> would also make sense in the equities world, as I would say in
90% of
> >> electronic trades that fall over it is due to symbology
mismatches.
> >>
> >> Will suggested that maybe for equity options you could start
> with having
> a
> >> FIX gateway doing simple puts and calls and ramp up after
> that. Question
> >> for Will : would Deutsche be willing to pilot it?
> >>
> >> I’ll try and think a little bit more about strategies, there
> has to be a
> >> nice way of doing them.
> >>
> >> Danny
> >>
> >>
> >
>
>
> Hi
>
> I have been discussing the following issues with FIX for derivatives, which centre around instrument description:
>
> 1) How could you describe an option on a future? eg an option on a forward rate agreement or a swaption.
>
> 2) How could you express strategy trades? List orders initially seem attractive but how could you then do an IOI for a calendar spread or a quote?
>
> Any ideas?
>