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Understanding Montreal Exchange Market Thresholds and Controls
Currently, “Marketplace Thresholds” are part of an integrated approach to prevent erroneous transactions, preserve market integrity and manage intraday sudden and unexplained market volatility.
Each of the Bourse’s controls play an important role in the overall risk mitigation process.
The main controls currently in effect on the Bourse are:
Market Operations Manual Supervision Controls
- For derivatives the underlying of which is exchange-traded, an automatic trading halt mechanism based on the circuit-breaker policy of the underlying exchange is in place;
- A discretionary authority is granted to market supervisors to halt trading upon sudden and unforeseeable events that may affect market integrity;
- Procedures for the cancellation or adjustment of trades allow market supervisors to quickly cancel trades or adjust trades prices;
Trading Platform Automated Controls and Limits (Marketplace Thresholds)
- An order price filter that validates incoming orders on futures and options on futures based on their price
- Maximum volume thresholds that validate incoming orders based on their size
- Price limit X - Order Price Protection
- Price limit Y -Trade Price Protection
- Dynamic Top of the Book Price limit
Platform Market Controls Application for MX Derivative Instrument category:
|Order Price Filters||X||Y||Dynamic Top of Book|
|Equity & ETF Options||no||yes||yes||no|
Trading Platform Automated Controls and Limits detailed descriptions
(1) Order Price Filters
The Bourse currently computes and disseminates the Order price Filters via its market data feeds for every listed product traded on the Bourse. Current limits are static for all futures and options on futures. The range is set as a differential (+/-) from the previous day’s settlement price with the following values:
|SXF, SXM, SEG, SCF, SMJ 5% early; 15% regular||2.00|
|SXA, SXB, SXH, SXY, SXV, SXU 5-15%||2.00|
(2) Order Maximum Volume Thresholds
The Bourse currently assigns and disseminates the Order Maximum Volume via its market data feeds for every listed product traded on the Bourse. Current limits are static for all MX Instruments are:
|CGB Calendar Roll Spreads||24999|
|SXF,SXM, SEG, SCF, SMJ||9999|
|SXA, SXB, SXH, SXY, SXV, SXU||9999|
|Equity ETF Options||99999|
|Single Share Futures||99999|
(3) Price limit X - Order Price Protection
X is a price limit based on a calculated control price that filters incoming orders based on their price. This limit validates incoming order prices against a predetermined control price. Any order above or below the limit price will be automatically rejected and a message to that effect will be sent to the market participant who entered the order. This order price validation should avoid transactions at prices that would be deemed detrimental to market integrity.
(4) Price limit Y - Trade Price Protection
Y is a price limit based on a calculated control price that validates the potential execution price of the next executable order. This limit is narrower than the X limit and validates the potential execution price against the same control price predetermined by the Bourse for each instrument. Any order priced within X’s limits will be accepted into the Central Limit Order Book (“CLOB”). The price limit functionality will intervene if the potential execution price of an order exceeds the Y’s limits and prevent the transaction from occurring.
Note: Both the X and Y limits for a given product are based on the same calculated control price.
While the X limits are disseminated to market participants via SOLA’s s High Speed Vendor Feed and Order Book Feed to participants’ front-end systems, the Y limits are not disseminated via SOLA’s HSVF.
Consequently, the Bourse publishes Y limits threshold percentages that are active thresholds for all option classes in the MX platform.
|Y% Below Control price||Y% Above Control price|
|ITM 8 and Up||30||40|
ATM At the Money
ITM In the Money
OTM Out of the Money
(5) Dynamic Price Control Top of the Book Price Protection
The Top-of-the-Book Price Limits that the Bourse are price limits based on dynamic resting Bid/Ask of the current Central Limit Order Book (“CLOB”) that validate the order limit price before the transaction.
The Top-of-the-Book Price Limits (TBPL) functionality validates the order limit price against the most recent dynamic snapshot of the resting Bid/Ask for a given contract within the CLOB. All sell orders use the resting Bid price as the reference price (or the resting Ask price if no bid is available), and all buy orders use the resting Ask price as the reference price (or the resting Bid price if no Ask price is available). If there is neither a Bid nor an Ask price in the CLOB, the Top-of-the-Book Price Limits functionality remains inactive. Any order priced within or at the Top-of-the-Book Price Limits are allowed in the electronic trading system.
Any order outside the Top-of-the-Book Price Limits is rejected by the system.
A limit order (including Stop Limit orders) with a price outside of the Top-of-the-Book Price Limits will be rejected even if there is enough for it to be filled before reaching the Top-of-the-Book Price Limits.
Moreover, during all pre-opening phases, only the Order Price Filters and X limits are active. For Stop Orders, the difference between the stop limit price and the stop trigger price will be validated against the Top-of-the-Book Price Limits.
The latest TBPL price limits for Index futures are enumerated in the table below.
|Symbol||Description||Current TBPL Threshold|
|SXF||S&P/TSX 60 Index Standard Futures||1%*|
|SXM||S&P/TSX 60 Index Mini Futures||1%*|
|SEG||S&P/TSX 60 ESG Index Mini Futures||1%*|
|SCF||S&P/TSX Composite Index Mini Futures||1%*|
|SXA||S&P/TSX Global Gold Index||1%*|
|SXB||S&P/TSX Capped Financials Index||1%*|
|SXH||S&P/TSX Capped Information Technology Index||1%*|
|SXY||S&P/TSX Capped Energy Index||1%*|
|SXK||S&P/TSX Composite Index Banks (Industry Group)||1%*|
|SXU||S&P/TSX Capped Utilities Index||1%*|
|SMJ||S&P/MX International Cannabis Index Futures||1%*|
*Limits are reviewed on a periodic basis to be set at a level that represent approximately 1% of the underlying index.