Order Flow with Clearing

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1

Imported from previous forum

2

How does the current order model work in relation to the leaves and cum quantity for the following scenario?

Assumption that for a trade to be processed it has be cleared:

Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = F; 151 = 50; 14 = 50;
Filled
39 = 2; 150 = K; 151 = 0;
39 = 2; 150 = F; 151 = 0;

What happens to the order quantities 151 and 14 if it doesn’t meet clearing?
Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = H; 151 = ??; 14 = ??;

Does 151 = 50; 14 = 10; ?
or 151 = 90; 14 = 10; ?

Also, what should happen if you have a bunch of partial fills that have been sent to clearing?

3

[ original email was from John Harris - john.harris@bondmart.com ]
Chris,

I assume that what’s happening here is that fills are conditional until accepted by the clearinghouse and that in your example, the clearinghouse rejected the final, conditional fill.

Without knowing more, I would further assume that the clearinghouse rejected the final fill on account of an exposure limit; that is, the clearinghouse was unwilling to accept further unsettled trade balances from this particular counterparty.

To the extent these assumptions are valid, I would posit that the final values for fields 151 and 14 in your scenario would be “0” and “10”, respectively (an outcome that falls outside of the alternatives you presented); following your message flow, you would then receive two 39=2 messages, the first with 150=K, the second with 150=F, and each with 151=0.

Hope that helps and makes sense.

Best,
John

How does the current order model work in relation to the leaves and cum quantity for the following scenario?

Assumption that for a trade to be processed it has be cleared:

Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = F; 151 = 50; 14 = 50;
Filled
39 = 2; 150 = K; 151 = 0;
39 = 2; 150 = F; 151 = 0;

What happens to the order quantities 151 and 14 if it doesn’t meet clearing?
Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = H; 151 = ??; 14 = ??;

Does 151 = 50; 14 = 10; ?
or 151 = 90; 14 = 10; ?

Also, what should happen if you have a bunch of partial fills that have been sent to clearing?

4

Chris,

I assume that what’s happening here is that fills are conditional until accepted by the clearinghouse and that in your example, the clearinghouse rejected the final, conditional fill.

Without knowing more, I would further assume that the clearinghouse rejected the final fill on account of an exposure limit; that is, the clearinghouse was unwilling to accept further unsettled trade balances from this particular counterparty.

To the extent these assumptions are valid, I would posit that the final values for fields 151 and 14 in your scenario would be “0” and “10”, respectively (an outcome that falls outside of the alternatives you presented); following your message flow, you would then receive two 39=2 messages, the first with 150=K, the second with 150=F, and each with 151=0.

Hope that helps and makes sense.

Best,
John

How does the current order model work in relation to the leaves and cum quantity for the following scenario?

Assumption that for a trade to be processed it has be cleared:

Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = F; 151 = 50; 14 = 50;
Filled
39 = 2; 150 = K; 151 = 0;
39 = 2; 150 = F; 151 = 0;

What happens to the order quantities 151 and 14 if it doesn’t meet clearing?
Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = H; 151 = ??; 14 = ??;

Does 151 = 50; 14 = 10; ?
or 151 = 90; 14 = 10; ?

Also, what should happen if you have a bunch of partial fills that have been sent to clearing?

Yes, the trades are conditional until the approved by the clearing house. Now if the trades are approved in partial increments and not the final fill, what happens when the trade is rejected in the middle of the fills because one of the counter-parties has violated the clearing requirements? Does the trade revert to the previous state and qty or is the qty no longer available since it was originally removed from the market?

5

[ original email was from John Harris - john.harris@bondmart.com ]
> > Chris,

I assume that what’s happening here is that fills are conditional until accepted by the clearinghouse and that in your example, the clearinghouse rejected the final, conditional fill.

Without knowing more, I would further assume that the clearinghouse rejected the final fill on account of an exposure limit; that is, the clearinghouse was unwilling to accept further unsettled trade balances from this particular counterparty.

To the extent these assumptions are valid, I would posit that the final values for fields 151 and 14 in your scenario would be “0” and “10”, respectively (an outcome that falls outside of the alternatives you presented); following your message flow, you would then receive two 39=2 messages, the first with 150=K, the second with 150=F, and each with 151=0.

Hope that helps and makes sense.

Best,
John

How does the current order model work in relation to the leaves and cum quantity for the following scenario?

Assumption that for a trade to be processed it has be cleared:

Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = F; 151 = 50; 14 = 50;
Filled
39 = 2; 150 = K; 151 = 0;
39 = 2; 150 = F; 151 = 0;

What happens to the order quantities 151 and 14 if it doesn’t meet clearing?
Partial Fill
39 = 1; 150 = K; 151 = 90; 14 = 10;
39 = 1; 150 = F; 151 = 90; 14 = 10;
Partial Fill
39 = 1; 150 = K; 151 = 50; 14 = 50;
39 = 1; 150 = H; 151 = ??; 14 = ??;

Does 151 = 50; 14 = 10; ?
or 151 = 90; 14 = 10; ?

Also, what should happen if you have a bunch of partial fills that have been sent to clearing?

Yes, the trades are conditional until the approved by the clearing house. Now if the trades are approved in partial increments and not the final fill, what happens when the trade is rejected in the middle of the fills because one of the counter-parties has violated the clearing requirements? Does the trade revert to the previous state and qty or is the qty no longer available since it was originally removed from the market?

Chris,

Are you able to identify the execution venue and clearinghouse at issue here? Or can you at least characterize them more fully, if you cannot identify them?

Best,
John

6

Maybe this would be easier…

We have 3 traders trading a FIX Income product.

Trader 1 is the buyer 500 at prc.
Trader 2 is a seller for 100
Trader 3 is a seller for 300

All trades are performed from above for trader 1.

Partial Fill (matched trader 2, and passes clearing)
39 = 1; 150 = K; 151 = 400; 14 = 100;
39 = 1; 150 = F; 151 = 400; 14 = 100;
Partial Fill (matched with trader 3, does not pass clearing)
39 = 1; 150 = K; 151 = 100; 14 = 400;
39 = 1; 150 = H; 151 = ??; 14 = ??;

So I was curious how this should be handled… Does 151 return to the original outstanding qty or is it removed from the book because the qty has been removed from the market.

In addition, does this scenario lend itself to the new standard?

7

[ original email was from John Harris - john.harris@bondmart.com ]
Chris,

You are asking an interesting question, but one that cannot be answered reasonably on the basis of the scenario information you have provided. For example:

  1. What is the role of the execution venue in the transaction? Does it act as agent or riskless principal?

  2. Which fill - the seller’s or the buyer’s - failed clearing, and why?

  3. What execution precedence or priority rules apply? Is a work-up protocol provided?

If you would like to talk through this, please feel free to call me on 1 212 514 5780.

Best,
John

Maybe this would be easier…

We have 3 traders trading a FIX Income product.

Trader 1 is the buyer 500 at prc.
Trader 2 is a seller for 100
Trader 3 is a seller for 300

All trades are performed from above for trader 1.

Partial Fill (matched trader 2, and passes clearing)
39 = 1; 150 = K; 151 = 400; 14 = 100;
39 = 1; 150 = F; 151 = 400; 14 = 100;
Partial Fill (matched with trader 3, does not pass clearing)
39 = 1; 150 = K; 151 = 100; 14 = 400;
39 = 1; 150 = H; 151 = ??; 14 = ??;

So I was curious how this should be handled… Does 151 return to the original outstanding qty or is it removed from the book because the qty has been removed from the market.

In addition, does this scenario lend itself to the new standard?