August 16, 2024Advisory Notice A24-015

Activation of the Covered with Stocks Functionality

Pursuant to Circular 062-24 and Advisory Notices A24-009 and A24-012, the Montréal Exchange is pleased to inform its participants that on September 3rd, 2024, the Covered with Stocks functionality will be activated for User Defined Strategies (UDS) on Equity options and ETF options.

For additional information on the functionality, please refer to the Guaranteed Cross Auction & Covered with Stocks webpage.

Covered with Stocks Functionality Features:

Execute options and stocks strategies simultaneously without slippage, thereby ensuring a secure trading experience.

Quicker execution times and clearer visibility of associated derivative and equity trades.

A minimum of 12% delta is required to use the Covered with Stocks functionality.

Options to stocks strategies done via Covered with Stocks can also be executed via the Guaranteed Cross Auction Functionality.

Reminder of the Guaranteed Cross Auction Functionality Features:

Engage in a unique auction process, ensuring optimal price discovery.

Benefit from the option of immediate trade execution for larger orders, enhancing trade fluidity.

Auction duration of 1 second for single options and options to options UDS and 5 seconds for options to stocks UDS (via covered with stocks).

Auctions can be initiated at prices up to 4 decimals.

Since June 3rd, 2024, the use of the Guaranteed Cross Auction functionality allows an Auction for transactions with a quantity lower than the threshold, specified in Article 6.205 (b) of the Rules of the Montréal Exchange. Over that specified threshold, the Guaranteed Cross Auction functionality leads to a zero second cross without Auction, if selected as such by the participants when sending the orders. Otherwise, an Auction will take place regardless of the order size with the use of this functionality. This outcome is reflected in the following table:

Equity or ETF Instrument Type	Minimum Volume Threshold*	Outcome (if using Guaranteed Cross Auction Functionality)
Single Options	Under 500 contracts	Auction
Single Options	Greater or equal than 500 contracts	Auction OR zero second cross if "Cross Preferred" selection has been made by participant.
Options to Options UDS	Under 500 contracts	Auction
Options to Options UDS	Greater or equal than 500 contracts	Auction OR zero second cross if "Cross Preferred" selection has been made by participant. OR If not yet using the Guaranteed Cross Auction functionality, these transactions can be called in to a Market Supervisor who will follow the procedures regarding the manual execution of options to options strategies. (Available until February 28th, 2025.)
Options to Stock UDS (Via Covered with Stocks)	Under 500 contracts	Auction
Options to Stock UDS (Via Covered with Stocks)	Greater or equal than 500 contracts	Auction OR zero second cross if "Cross Preferred" selection has been made by participant. OR If not yet using the Guaranteed Cross Auction functionality, these transactions can be called in to a Market Supervisor who will follow the procedures regarding the manual execution of options to stock strategies conditional to the transaction having a minimum of 12% delta. (Available until February 28th, 2025.)

*The volume considered as the minimum volume threshold will be the residual volume after any applicable resting limit orders at or better than the prearranged Transaction price have been given priority.

The Montréal Exchange's parameters related to the Guaranteed Cross Auction Functionality are indicated in the below table:

Parameter	Value
Minimum Size	1
Maximum Size	99,999
Auction Duration	1 second for single options 1 second for options to options UDS 5 seconds for options to stock UDS (via Covered with Stocks)
Auction Tick	For any Auction Orders and Improvement orders matching the Auction Order: $0.0001 For Improvement orders that improve the price of an Auction Order: same as the current instrument tick table

Please note that in order to take advantage of the functionality participants must contact the Market Operations to get the Covered Trades MX - TSX trader IDs pairing form.

If you require technical assistance please contact the Market Operations Department.

Regards,

Market Operations

Toll-free: 1-888-693-6366

Local: 514-871-7877

Email: Monitoring@tmx.com

The information contained in this document is for information purposes only and shall not be construed as legally binding. This document is a summary of the product's specifications which are set forth in the Rules of Bourse de Montréal Inc. ("Rules of the Bourse"). While Bourse de Montréal Inc. endeavors to keep this document up to date, it does not guarantee that it is complete or accurate. In the event of discrepancies between the information contained in this document and the Rules of the Bourse, the latter shall prevail. The Rules of the Bourse must be consulted in all cases concerning product's specifications.