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Cross Transactions, Prearranged Transactions and Block Trades
For futures contracts and options on futures contracts, two orders from the same market participant at the same price and for the same quantity can be entered simultaneously into SOLA while complying with the priority of bids and offers, and if the quantity is above the eligible portion established by MX periodically to reflect market conditions.
The objectives of the crossing procedures described herein are:
- ensure that a cross transaction is executed at a price at which there are no other market participants who are willing to trade any or all of the order at a better price.
- when applicable ensure that all market makers are informed of such a trade prior to its execution and have the opportunity to participate.
More information on the execution of cross transactions.
- Bid < Cross order price < Ask
- Use the "cross" button or enter one side in the order book and instantaneously trade against it (execution risk).
- Bid > Cross order price > Ask
- Must fill all existing orders on the central order book which are at limit prices better than or equal to the cross price.
- And then
- Apply the procedure explained in I) for the remaining quantity.
Frequently asked questions
What is a prearranged transaction?
A prearranged transaction occurs when one or more approved participants engage in pretrade discussions in order to agree on the terms of the transaction before entering the orders into the electronic trading system.
What is a cross transaction?
A cross transaction occurs when two orders of opposite sides originating from the same approved participant are intentionally executed against each other, in the context of the market, in whole or in part as a result of pretrade discussions. Participants must respect time delays and chronology of orders.
It is forbidden to use the hidden quantity functionality of the electronic trading system to execute a cross transaction or a prearranged transaction.
What is a block trade?
A block trade occurs when approved participants or clients engage in pretrade discussions to arrange large size transactions away from the electronic trading system at prices mutually agreed upon.
Block trades are permitted for all futures contracts and options on futures contracts, excluding index derivatives (under review for future consideration).
Can you explain pretrade discussions?
MX decided to permit pretrade discussions to facilitate transactions otherwise difficult to execute in the central limit order book. Clients must consent to allow approved participants to engage in pretrade discussions with other market participants with respect to an order-and approved participants are required to keep records to this effect.
Will block trades affect the quality of the market and the central limit order book?
The intention of MX is to make this facility available for extraordinary circumstances and not to become a regular or significant part of the market.
Participants can be reassured that the central limit order book will remain intact and the price discovery mechanism associated with the market will be respected. MX will review threshold limits if block trades exceed 10% of the average daily volume in any given month.
What are the conditions to a block trade?
A market participant may execute block a trade for a quantity equal to or greater than the applicable minimum volume threshold in a security or derivative instrument designated by MX, under the following conditions:
- a block trade can only be arranged during the regular trading hours of MX.
- all details of a block trade must be submitted in writing to MX within the time delay prescribed by MX.
- a block trade may be arranged only for a eligible security or derivative instrument that has been designated by MX for that purpose.
- an approved participant cannot aggregate separate orders to meet the minimum volume thresholds.
- the block trades shall not set off special terms orders or otherwise affect orders in the regular market.
For which strategies are block trades allowed?
Approved participants are permitted to enter into block trades in any strategy recognized by MX. However, block trades cannot be used for normal calendar rolls.
- Where a strategy involves trading two or more different securities or derivative instruments, the smaller of the minimum volume thresholds of the securities or derivative instruments comprised in the block trade will be applied to each of these securities or derivative instruments.
- Where the strategy involves trading two or more different contract months and/or strike prices of the same contract month, the minimum volume threshold will apply to each leg of the trade, except where specific provision has been made within the published minimum thresholds.
Could you explain the "fair and reasonable" price for a block trade?
The price at which a block trade is arranged must be fair and reasonable in light of factors such as the size of such a block trade, the currently traded prices and bid and ask prices in the same contract at the relevant time, the volatility and liquidity of the relevant market as well as the general market conditions.
As a guideline, the "no cancel" range for each contract will be used at the time of execution-subject to the preceding.
No cancel range Spread Options on Three-Month Canadian Bankers' Acceptance Futures 5 basis points Government of Canada Bond Futures 40 basis points
Who must fill and submit to MX the Block Trade Reporting Form?
Approved participants for both the buyer and the seller must complete and submit the Block Trade Reporting Form. Submission must be done within the period of time prescribed by MX.
Where can I obtain a copy of the procedures for execution of cross transactions, prearranged transactions and block trades?
You can obtain your copy online or by contacting the Market Monitoring Department at 1-888-693-6366 or at 514 871-7871.
Are these transactions allowed on equity options?
Procedures have been established that permit market makers to participate in prearranged transactions. Block trades are restricted to the interest rate futures market only.
Who sets the block thresholds?
They were initially established through market consultation. MX is committed to the success of the central limit order book. Thus, if block trades exceed 10% of the average daily volume in any contract for a month, MX will request an increase in the established limits.
As a condition of the Autorité des marchés financiers's approval of the block trading rules, MX must inform in advance of its intent to change the threshold levels and must submit to the AMF an analysis supporting the intended change.
How are block trades reported?
They are entered immediately into the trading system with a special marker identifying them as block trades. Volume is affected, but high/low prices are not. Block trades do not enter into the calculation of the daily settlement prices.
A daily transaction report for block trades and crosses is available at dailycrosses_en.php.
Can a block trade be cancelled?
Block trades are not entered into the system unless they have met the fair and reasonable test of MX rules. When entered, these trades will not be cancelled.
It is important to remember that the acceptance of a block trade does not restrict a subsequent investigation of the terms of such trade by the Regulatory Division of MX to ensure that proper procedures have been applied to the trade.
What are the fees?
There are no additional fees. Only the regular fees apply.
Can clients call the Market Monitoring Department?
No, only approved participants (domestic or foreign) can call to execute a block trade.