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CME Gateway

Support for User-Defined Strategies

Introduction

In addition to exchange-defined strategies, the CME Gateway supports creating a User-Defined Strategy (UDS) using the client trading application.

Strategy Types

The CME Gateway supports creating two basic UDS types: Covered and Combo.

  • Covered: A strategy where options and futures are traded as a spread. These strategies require a futures contract price and delta. The legs of the spread also can be spreads or exchange-defined and user-defined strategies.
  • Combo: Any options spread where the legs are a combination of outright options, exchange-defined options strategies, or listed user-defined options strategies.

Enabling UDS Support

To enable this functionality on the CME Gateway, you must ensure the following:

  • To create and trade a User-Defined Strategy, you must upgrade to X_TRADER® 7.6 or higher. To trade user-defined strategies, you need X_TRADER® 7.5.2 or higher.
  • Verify that the client application receives price updates for the outrights.
  • Verify that OptionStrategies=Y in the hostinfo.cfg file.
  • Determine the setting for the ProcessCoveredUDS parameter in the [price_session] section of hostinfo.cfg:
    • ALL: Allows the price server to download all Covered UDS security definitions from the exchange. A Covered UDS contract with multiple Futures legs will not be accurately risk checked by the client trading applications in your environment. Refer to for more information.
    • SINGLE: Configures the price server to download and process definitions only for Covered strategies with one outright Futures leg. This is the default CME Gateway behavior.
    • NONE: Configures the price server to disregard all Covered UDS security definitions.
  • Enable or disable logging of UDS creation and download messages using the LogUDSCreation parameter in hostinfo.cfg:
    • Y: Enables logging of UDS Created and UDS Received messages.
    • N: Disables logging of UDS Created and UDS Received messages.
    Note

    User-Defined Strategies are supported in FIX/FAST mode only. To subscribe to a channel in the fast.cfg file, verify that each line for the instrument you wish to trade is uncommented (i.e., remove the # symbol if present).

Interpreting the Audit Trail

The Audit Trail may display the following messages during Covered or Combo strategy creation:

  • Sent request to create series: X_TRADER® forwarded the strategy to the TT Gateway.
  • Sending COVERED strategy creation request to globex: The TT Gateway forwarded the Covered strategy request to the exchange.
  • Sending COMBO strategy creation request to globex: The TT Gateway forwarded the Combo strategy request to the exchange.
  • Successfully created UD:U$:CFO: Indicates that the exchange accepted the creation request. The exchange’s ten-digit identification code appears at the end of the Successfully created message. However, the actual strategy is not available to work in the market until the UDS instrument is created by the price server.
  • Create Spread Series ended: Displays when the process completes. If this occurs before a Successfully created message appears, then the strategy creation timed out and the exchange did not provide any additional information.
  • Strategy Creation Rejected - Unsupported Strategy Type <Requested Type> - Globex Gateways only support the creation of Combo and Covered Strategies: Indicates the Order Server rejected an unsupported strategy type entered by the client trading application.
  • Can’t send covered creation request with invalid price delta x.xx Acceptable price delta range [0.01-1.00{40.00}]: Displays when an invalid delta value is entered for a futures leg covering an option outright or spread/strategy.

Data Flow for Creating a UDS

The following is a sample data flow for creating a Covered or Combo UDS using X_TRADER®:

  • For a Covered UDS creation request, X_TRADER® sends a Strategy Type of Covered and the price and delta entered for each Futures leg to the Order Server. The Order Server uses the GAL setting defined for a delta (AConfig.Core.Server.Exchange-Specific.CME.GAL.Vol-Qty-Ratio-Denom) in aconfig_local.xml to treat the delta as a percentage quantity of the Futures leg before checking it for validity. A message for the request is logged in the Audit Trail.
  • For a Combo UDS creation request, X_TRADER® sends a Strategy Type of “Combo” to the Order Server. A message for the request is logged in the Audit Trail.
  • For each leg of the strategy, the Order Server obtains the Instrument Group Code and Complete Instrument Code from the FIX/FAST security definition messages, and includes them in the UDS request sent to the exchange.
  • For a Combo or Covered UDS the Order Server validates the request and forwards it to the exchange, then sends a message to X_TRADER® indicating the request has been sent. If the Order Server denies the request, it logs a failure message in the Audit Trail in X_TRADER® explaining the reason for the rejection.
  • The exchange accepts or rejects the UDS creation request and sends the corresponding message to the Order Server. Some examples of why the exchange rejects a request are:
    • The strategy already exists.
    • The content or format of the creation request message was incorrect.
    • The underlying products are not available for trading, or the market is closed.
  • The Order Server logs a message in the Audit Trail in X_TRADER® indicating whether the Combo or Covered strategy was accepted or rejected by the exchange.
  • If accepted, the exchange multicasts the security definitions for the created Combo or Covered strategy to the Price Server.
  • The Price Server creates the Combo or Covered UDS contract and makes it available for trading and quoting.

UDS Supported Order Types

The following order types are supported for Covered and Combo UDS instruments:

  • Limit
  • Market-Limit

The CME Group supports the following order qualifiers for a Combo UDS:

  • GTD
  • GTC
  • FAK

Client Application Impact

In addition to the risk limits you can establish in Guardian, P&L calculations and risk management for trading UDS contracts are supported by the following minimum versions of these TT clients:

  • X_TRADER® 7.6
  • X_RISK® 7.3.2
  • X_STUDY™ 7.2
  • FMDS
  • TT USER SETUP 7.0.3

Covered User-Defined Strategies can be created and made available for trading if you decide to do so. Setting the ProcessCoveredUDS parameter to ALL in the hostinfo.cfg file will download all Covered UDS security definitions, including Covered User-Defined Strategies with multiple Futures legs. However, the client trading applications in your trading environment will not correctly calculate risk for the multiple Futures legs of the Covered UDS. Refer to the following example.

Example A Covered UDS defined with multiple futures legs

Created as...

+1x6E Nov09 C11100:-.5x6E Dec09:+.5x6E Nov09

Will be incorrectly risk checked as...

+1x6E Nov09 C11100:-.5x6E Dec09:+50x6E Nov 09

This example illustrates that risk calculations for one of the Futures legs will be incorrectly multiplied by a factor of 100, causing traders to surpass their risk limits.