Chi-X Canada ATS Limited Subscriber Manual Purpose
Chi-X Canada ATS Limited Subscriber Manual Purpose This document explains Chi-X Canada’s policies, procedures, and technology. Because the information contained in this document is subject to change at any time, please contact Chi-X Canada for the most recent updates at [email protected]. How to Subscribe Subscriber Eligibility Chi-X Canada Subscribers must be members of the Investment Industry Regulatory Organization of Canada (IIROC) in good standing with the ability to clear trades on a continuous net settlement (CNS) basis with the Canadian Depository for Securities (CDS). If a Subscriber ceases to be a member of IIROC it shall also cease to be a Subscriber of Chi-X Canada. If a Subscriber has its membership privileges suspended by IIROC, it status as a Subscriber of Chi-X Canada will also be suspended. The latest version of the Chi-X Canada approval criteria is provided below. Please check for any updates on the Chi-X Canada website. Chi-X Canada Approval Criteria for Subscribers, Data Vendors and Sponsored Participants 1. Subscribers must be registered in all Canadian jurisdictions in which they do business and in good standing with IIROC. 2. Subscribers must execute Chi-X Canada’s Subscription Agreement in accordance with National Instrument 21-101 before Chi-X Canada execute any order to buy or sell securities from such Subscriber. 3. Subscriber must provide Chi-X Canada information about such Subscriber’s clearing arrangements, including the identification of such Subscriber’s clearing broker. 4. Subscriber must conduct its trading activities in compliance with the Universal Market Integrity Rules and any other order or direction made by IIROC. 5. Subscribers, Data Vendors and Sponsored Participants must make timely payment of all fees charged by Chi-X Canada for market data and other fees charged for Services. 6. Subscribers, Data Vendors and Sponsored Participants must receive written pre-approval from Chi-X Canada for any data re-distribution by such Subscriber, Data Vendor, or Sponsored Participant to any third party. 7. Subscribers, Data Vendors and Sponsored Participants must provide monthly notification to Chi-X Canada of the number of professionals and non-professional market data users. 8. Subscribers, Data Vendors and Sponsored Participants must furnish promptly to Chi-X Canada any information required by Chi-X Canada to confirm the accuracy of the reported number of users of each category receiving data through such Subscriber, Data Vendor, or Sponsored Participant Chi-X Canada may from time to time modify these criteria as it deems necessary and any such modifications will be posted on the Chi-X Canada website. Available Documents The following documents are available for subscribers: Chi-X Canada Subscriber Agreement – contract between Chi-X Canada and Subscribers Chi-X Canada Subscriber Manual – general policies and procedures on Chi-X Canada (this document) Chi-X Canada Connectivity Guide – connectivity options and bandwidth recommendations The following documents are available for vendors: Chi-X Canada Vendor Agreement – contract between Chi-X Canada and vendors (covers order entry and market data) The following technical specifications are also available for order routing and market data connectivity: Chi-X Canada FIX Specification – orders using FIX format. Chi-X Canada CHIXMD Specification – Chi-X Canada direct unicast market data information. Chi-X Canada CHIXMMD Specification – Chi-X Canada direct multicast market data information. The following Chi-X Canada Market Data Agreements are also available for market data customers: Chi-X Canada Market Data Use Agreement – for Chi-X Canada market data customers using Chi-X Canada market data for internal use only. Chi-X Canada Data Distribution Agreement – for Chi-X Canada market data customers who distribute Chi-X Canada Market Data to third parties. Please contact Chi-X at Canada (888) 310-1560 for more information about becoming a Subscriber. The Chi-X Canada Alternative Trading System Chi-X Canada is a fourth-generation, alternative trading system (ATS) running on open-standard and commoditized technologies, and architected to maximize speed, performance and reliability. Market Overview Market Type Alternative Trading System (ATS) Market Operation A continuous auction market based on strict price/time priority. • Customer orders are protected from trade-through, locked and crossed markets Securities Traded TSX®-listed and TSX® Venture securities Market Data Disseminated electronically either directly or through third-party data vendors. The data feed offers full depth of book (price volume) as well as trade data. -3- Order Entry Industry-standard FIX protocol order entry via third-party and proprietary execution management systems. • Advanced order types • Low latency, high volume message processing • Intelligent Order Book™ • Market-level smartrouting to displayed markets Trading Hours The ATS shall allow Subscribers to trade in a continuous auction market between the hours of 8:30 a.m. and 5:00 p.m. (Eastern Time) on business days. Dynamic Order Re-pricing Orders that are entered on Chi-X Canada that cross the National Best Bid Offer (“NBBO”) and would either trade-through or quote-through a better priced protected order will be automatically re-priced to prevent a trade-through or crossed market from occurring. In addition, orders that are entered at the NBBO that would lock the market will also be re-priced. When an order is repriced, its price priority after each re-pricing is determined by the price level to which it has been re-priced, while its time priority is determined by the time each re-pricing occurs. When repricing multiple orders to the same price level, the time sequence for the re-pricing will be determined by each order’s original timestamp or by the timestamp associated with the last repricing. Dynamic order re-pricing is available between 9:30 a.m. to 4:00 p.m. (Eastern Standard Time). Before 9:30 a.m. and after 4:00 p.m. (Eastern Standard Time), orders will be re-priced once and then have their price remain static. When an order has been re-priced outside of normal market hours, the order must be modified or cancelled and replaced in order to change the price of the order again. Holiday Schedule The system will be available for trading on all business days – Monday through Friday inclusive – from 8:30 a.m. to 5:00 p.m. Eastern Time, excluding Canadian Statutory Holidays. A list of the current year’s holiday schedule can be found on Chi-X Canada’s website www.chi-xcanada.com Eligible Securities Chi-X Canada offers trading in all Toronto Stock Exchange listed securities and TSX-Venture listed securities. We do not trade debentures or notes. Minimum Price Increment - Chi-X Canada will allow the entry of orders in the minimum tick increment allowed by UMIR: For stocks with a previous close price >= $.50 a minimum price increment of $.01 CAD For stocks with a previous close price < $.50 a minimum price increment of $.005 Board Lot Sizes Chi-X Canada will only permit orders to be entered in Board lots that are defined as Standard Trading Units by UMIR which are determined by the previous day’s National Last Sale Price (NLSP) also as defined by UMIR. An order that is entered as an odd lot or a mixed lot will be rejected. Chi-X Canada Intelligent Order Book™ -4- Chi-X Canada consumes and consolidates market data feeds from all displayed markets in Canada. This enables Chi-X Canada to be able to calculate the best bid and offer in the market (“National Best Bid Offer”, or “NBBO”) which in turn facilitates compliance with the Order Protection Rule (“OPR”) and the ability to prevent locked and crossed markets. From the market data feeds, the matching engine dynamically updates the NBBO for all securities eligible to trade on Chi-X Canada. If a Subscriber’s order is not marked CSO and designated as a directed action order (“DAO”) for the purposes of the Order Protection Rule the system will automatically re-price the order to a price within the quote if the order would cross the NBBO to create a “crossed market” or trade outside the NBBO (trade-through). In addition, any buy order not marked CSO entered at the National Best Offer (“NBO”) or any sell order not marked CSO is entered at the National Best Bid (NBB) that would result in a “locked market” it will be re-priced to a price within the NBBO in order to prevent the locked market from occurring. When an order is re-priced it will be placed in time priority behind any other orders at a price level. By re-pricing orders in these scenarios, Chi-X Canada is able to meet its OPR obligations and facilitate compliance by Subscribers with rules that prohibit Subscribers from intentionally locking or crossing the market Where an order would not result in a trade through or a locked or crossed market, it will execute against orders posted in the Chi-X Canada book at or within the consolidated best bid/offer. To see several illustrative examples of order re-pricing please refer to Appendix A – Trade-through, and Locked and Crossed Market Order Re-pricing Condition Order Entry Interface All orders entered and/or modified or cancelled by Chi-X Canada Subscribers will be entered using the Financial Information eXchange (FIX) protocol. FIX allows Subscribers and their software developers to integrate Chi-X Canada into their proprietary trading systems which can be used to build customized front ends. All orders are entered via FIX into the Core Matching Engine in the Chi-X Canada FIX protocol which supports all Canadian-specific and UMIR required fields. FIX Order Entry Bandwidth Recommendations: Bandwidth recommendations for submitting orders via FIX are gauged on expected Subscriber order volume. The following table shows the maximum number of inbound orders (and/or cancels) per second that can be handled, with no buffering or delay, with different capacity connections: Order Protocol Connection Bandwidth Examples 64kb 128kb FIX Message Capacity Standard High Frequency Market Data Interface Chi-X Canada Market Data is available in both unicast and multicast protocols. a) CHIXMD Market Data Interface CHIXMD is Chi-X Canada’s web-based direct market data feed that provides pre and post-trade data about orders entered into and executed on Chi-X Canada. Chi-X Canada’s data feed contains information concerning buy, sell and sell short orders, and last match price. -5- Chi-X Canada’s data service utilizes a protocol specifically designed for the high-speed dissemination of real-time order book information. The CHIXMD market data feed connection between Subscribers and Chi-X Canada is established using a lightweight point-to-point protocol, built on top of TCP/IP sockets that allow delivery of a set of sequenced messages from a server to a client in real-time. CHIXMD guarantees that the client receives each message generated by the server in sequence, even across underlying TCP/IP socket connection failures. b) CHIXMMD Market Data Interface CHIXMMD is Chi-X Canada’s real-time multicast market data feed that delivers market data in UDP multicast packet streams which are published over the Chi-X Canada multicast market data network. There are multiple data streams published over this network for resiliency and redundancy purposes. All streams carry identical content about Chi-X Canada market data. By subscribing to these data streams, market data customers receive the latest market data updates from the Chi-X Canada trading platform including information about buy, sell and sell short orders and last match traded price. The multicast message recovery service offers message recovery to market data customers. Market data customers can connect to a designated MMRS server and request for past message retransmission. The recovery process is implemented via a TCP connection established by a request sent by the market data customers to the MMRS server. Initially customers may choose to receive either Chi-X Canada’s unicast or multicast market data feeds. Over time Chi-X Canada’s unicast market data feed will be fully migrated to Chi-X Canada’s multicast market data feed. Both the CHIXMD and CHIXMMD market data feeds are available at Chi-X Canada’s primary and secondary sites for resiliency purposes. CHIXMD and CHIXMMD Market Data Bandwidth Recommendations Chi-X Canada recommends that Subscribers allocate at least 10Mb/sec for Chi-X market data. Market Data Protocol CHIXMD and CHIXMMD Connection Bandwidth Examples 10Mb 16Mb Recommended Ample As trading volumes on Chi-X Canada grow, the volume of quote messages will also grow and consequently increase the CHIXMD and CHIXMMD market data feed bandwidth requirement. ChiX Canada actively monitors the number of quote messages that are being generated by the market. Should the situation arise, Chi-X Canada will provide Subscribers notification of any changes that are needed to be made in the CHIXMD and CHIXMMD bandwidth requirement. -6- Chi-X Canada Order Handling and Instructions Matching Engine – The Chi-X Canada Alternative Trading System accepts buy, sell, and sell short orders from system Subscribers, comparing them in real-time and executing trades from matching orders based on strict price/time priority. Orders accepted by Chi-X Canada that are not immediately matched are “posted” in the engine’s Intelligent Order Book™, a dynamically updating real-time database of limit orders, where they are visible to other Subscribers. Quotation for orders posted in the Chi-X Canada book is disseminated to system Subscribers as non-attributed quotes anonymously aggregated at each price level; no Subscriber's identity is disclosed during any part of the order lifecycle - before, during, or after an execution unless a Subscriber opts in for post trade attribution.1 Opt-in Attribution – Although quotation for orders entered in the Chi-X Canada book is normally disseminated to system Subscriber’s as non-attributed quotes, Subscribers are able to choose to have information about their Subscriber ID be displayed, post trade, on an order-byorder basis. Whereas most Canadian marketplaces enable Subscribers to opt-out of attribution by entering an order as anonymous or with Broker ID #001, Chi-X Canada enables Subscribers to opt-out of being anonymous by entering an order as attributed with their Subscriber ID. Orders that are designated as attributed will display a Subscriber’s ID on a post trade basis - Subscriber ID’s are displayed for trades that occur. Priority Matching All orders follow the following sequence of execution priority; price/time. Price Priority Example Priority P1 P2 P3 Size 300 100 100 Bid 10.00 9.99 9.98 Offer 10.01 10.02 10.03 Size 500 600 100 The buy order for 300 shares has execution priority because it is the highest price bid. Likewise, the sell order for 500 shares has execution priority because it is the lowest price offer. Time Priority Example Priority P1 P2 P3 1 Size 100 100 100 Arrival Time 9:30:00 9:31:00 9:35:00 Bid 10.00 10.00 10.00 Subscribers’ identities are necessarily disclosed when trades are submitted to CDS -7- Where two or more orders are posted at the same price, the order that was entered first has execution priority. In this example, the buy order for 300 shares entered at 9:30:01 has execution priority because it was entered before the other two orders for 100 shares each at the same price. Chi-X Canada’s Order Protection Solutions Chi-X Canada employs two solutions to reasonably prevent trade-throughs on its marketplace; repricing done by Chi-X Canada’s Intelligent Order Book, and trade-through prevention by Chi-X Canada’s Smart Order Router. Chi-X Canada Subscribers are provided choice in selecting which solution best fits their trading needs. Subscriber’s are also able to by-pass both solutions by sending CSO orders (which have been designated as DAO orders for the purposes of the Order Protection Rule) which will be immediately entered on Chi-X Canada without reference or regard to prices on other marketplaces. Please Refer to Appendix A – Trade-through, and Locked and Crossed Market Order Re-pricing Condition -8- Chi-X Canada ATS Limited Intelligent Order Handling Strategies Chi-X Canada offers Subscribers a choice of order handling strategies to improve trading efficiencies and help achieve best price and best execution. Chi-X Canada Subscribers select from a suite of order handling strategies on an order-by-order basis (default settings are available). Strategies that route orders to other market centers will route on a “service bureau” basis in which the receiving destination knows the underlying Subscriber as the executing broker (i.e. the TSX, TSX Venture, Pure, Omega, Alpha and TMX Select will know the Subscriber as the order originator, not Chi-X Canada). Chi-X Canada’s Smart Order Router Chi-X Canada offers pre-configured (Standard Strategies) as well as customizable smart order routing strategies (Custom Strategies): Pre-configured Smart Routing Strategies Subscribers have the following options to choose from when selecting a pre-configured smart order routing strategy: A) Posting destination: Chi-X Canada, TSX, Alpha, TSX-Venture Orders will scan the Chi-X Canada book for liquidity at a price equal to or better than the best prices displayed on other markets; if sufficient liquidity to fully execute an order is not resident on the Chi-X Canada book, the SmartRouter sprays order(s) for any residual shares out to other markets displaying liquidity at the consolidated best price. Any residual shares that remain unexecuted after scanning and spraying are posted to either: Chi-X Canada, TSX, Alpha, or TSXVenture as determined by the Subscriber. B) Dynamic/Non-Dynamic: Subscribers may elect to have the SmartRouter continuously scan the market and pull the order from the posting marketplace to re-spray if the posted order becomes marketable on other venues. C) Access to Dark Liquidity Subscriber’s may elect, if desired, to have their orders interact with orders on the MatchNow Dark Pool. If at any point in time there exists a displayed market of which a Subscriber is not a member, Chi-X Canada and the Subscriber can discuss alternative order handling options; which include, but are not limited to disabling routing to that market. SMARTROUTER CUSTOM STRATEGY Chi-X Canada’s SmartRouter has several configurable components that allow us to create custom smart routing configurations: -9- • • • • • Ping Destination - a blind IOC, to seek hidden liquidity for example Routing Table – market routing priority, also determines overspray priority Posting Destination Dynamic/ Non-dynamic – re-interact with the market following a post/ stay put Top-Of-Book/ Multi-Price Level – price sensitive spraying/ time sensitive spraying Chi-X Canada makes ongoing enhancements to its SmartRouter to permit new and additional tailored custom strategies to meet the specific routing needs of our customers. SmartRouter Odd/Mix Lot Order Handling: Currently, CHI-X Canada, Omega and TMX Select only accept orders which are a multiple of the Standard Trading Unit (STU), i.e. a Round Lot. The TSX, , TSX-Venture, Pure and Alpha accept Odd Lot orders, however, an Odd Lot will not match with a Round Lot. The SmartRouter will intelligently handle Odd Lot orders based on the following guidelines: Do not spray CHIX, or Omega with Odd or Mixed Lots. Do not consider Odd Lot quotes from the TSX in routing decisions. Chi-X Canada SmartRouter Special Cases and Special Terms Order Handling Order Type Stop Order Opening Order Pre9:30 a.m. Opening Order Post 9:30 Market Order Pre9:30 a.m. Market Order between 9:30 a.m. and 4:00 p.m. Closing Order Pre9:30 a.m. Route TSX – Direct TSX-Venture Direct TSX – Direct TSX-Venture Direct REJECT TSX – Direct TSX – Venture Direct SMRT * TSX – Direct TSX – Venture Direct Closing Order Post9:30 a.m. TSX – Direct TSX – Venture Direct GTC Odd Lots REJECT TSX – Direct TSX-Venture Direct SMART CHIX Dynamic SMART X DYNAMIC Pre-9:30 a.m. Special Terms Limit Order Pegged Orders CSO CHIX - Direct CHIX - Direct CHIX - Direct Description Stop and Stop Limit orders are directed to the TSX, or TSX-Venture. Limit/ Market On Open orders go directly to the TSX or TSX-Venture Opening Auction. Limit/ Market On Open orders post 9:30 are rejected to prevent any routing errors. Market Order pre-9:30 go directly to TSX Opening Auction as a Market On Open order. Market orders between 9:30 and 4:00 use the specified SMART Strategy. (Market orders after 4:00 are rejected) Limit On Close orders are not available until 9:30. Market On Close orders go directly to the TSX or TSXVenture Opening Auction. Limit/ Market On Close Orders are directed to the TSX or TSX-Venture (Limit/ Market On Close orders after 4:00 are rejected). Good Till Cancel orders are rejected. Odd Lots are directed to the TSX or TSX-Venture. SMART X DYNAMIC orders entered before 9:30 a.m. are converted to CHIX DYNAMIC orders. Limit orders with MinQty , FOK, or AON parameters are directed to CHIX. Pegged orders are directed to CHIX. Orders market CSO route directly to CHIX. - 10 - Chi-X Canada ATS Limited Order Types Traditional Order Types Market Order – An order to buy or sell a security at the best available price on Chi-X Canada but will not trade at a price outside the NBBO. Limit Order – An order to buy or sell a security at a price equal to, or better than, the specified limit price. Short Sell Order – An order to sell a security that the seller does not own (either directly or through an agent or trustee) at the time of the order. Short-marking Exempt Order – An order by an account to buy or sell a security that meets the definition of a short-marking exempt as defined by UMIR. Advanced Order Types Intentional Cross The simultaneous entry of both an order to buy and sell the same amount of a security at the same price entered by the same Subscriber. In accordance with IIROC guidance on rules for dark liquidity, Chi-X Canada will accept better priced intentional crosses including those entered with a price of a half trading increment. Internal Cross An intentional cross between two accounts that are managed by a single firm acting as a portfolio manager with discretionary authority in managing the investment portfolio. Basis Cross A cross of at least 80% of the component share weighting of the basket of securities, index participation unit, or derivative instrument that is the subject of the basis trade. In accordance with UMIR, prior to execution, the Subscriber shall report details of the transaction to IIROC. VWAP Cross A VWAP cross is a cross of a security at the volume weighted average price of multiple trades on a marketplace or on a combination of marketplaces over a specified time period. The volume weighted average price is the ratio of value traded to total volume. In accordance with UMIR, where applicable, prior to execution, the Subscriber shall report details of the transaction to IIROC. Contingent Cross A cross resulting from a paired order placed by a Participant on behalf of a client to execute an order on a security that is contingent on the execution of a second order placed by the same client for an offsetting volume of a related security as defined in UMIR. - 11 - Sweep and Cross Order This order type will facilitate an Intentional Cross by displacing any better priced orders on protected markets. Chi-X Canada will route IOC's to all protected markets that contain displayed prices that are better than the customer’s limit price. The IOC's will be sent to all markets simultaneously and carry the Bypass marker. Once Chi-X Canada has attempted to execute against all better prices on the protected markets, it will send a "cross" order to the Chi-X Canada book. Bypass Order The Bypass order marker indicates that the user does not want the order to interact with undisplayed orders or undisplayed portions of iceberg or X-berg orders on the Chi-X Canada market. Orders marked with the Bypass marker will be treated as Immediate-Or-Cancel (IOC). Chi-X Sweep Order™ (CSO) The CSO order marker indicates that the user has already checked the quotes of all other markets before routing to Chi-X Canada. This order will not be eligible for Chi-X Canada smartrouting, and Chi-X Canada's dynamic re-pricing and trade-through prevention mechanism will not apply. It will trade with the best priced contra-side order(s) without consideration of prices on other marketplaces. Subscribers and their vendors will use the CSO when smartrouting orders to Chi-X Canada. Since the Subscriber's or Subscriber's vendor's smartrouter will route to Chi-X Canada after taking a snapshot of the consolidated market data, there isn't a need for Chi-X Canada to perform the price check a second time before executing the order. The CSO order allows Subscribers or their vendors who are using smartrouting technology to "opt-out" of Chi-X's re-pricing and tradethrough protection mechanism, as they are performing the price checking on their own. Post Only Order An order that will post in the Chi-X Canada order book intended to provide liquidity. If the order upon entry would result in a trade, the order will be re-priced one tick increment more passively and booked. This order will not interact with hidden liquidity. Post-only orders may be combined with any other order type including non-displayed orders. Two contra side post-only nondisplayed orders eligible to match will not execute. Instead, both orders will maintain their price until executing against an active order. In addition, no execution will take place between a resting dark limit order and an incoming contra order marked post only with the same price as the resting order. Instead, both orders will sit in the booked at the locked price. Reserve/ Iceberg An order where a customer determines the number of shares to be displayed, 2 while the remainder is hidden in reserve. When the visible portion is fully executed, a new visible displayed size is refreshed, drawing from the amount of the reserve. New displayed sizes will refresh until the amount of the reserve is less than the displayed amount. At that point, the remaining reserve quantity will be displayed. An example of how priority is determined for Iceberg orders is provided below. The displayed quantity must be equal or greater than one standard trading unit (STU) or such greater size as designated by IIROC. 2 - 12 - Example – Display Priority, Reserve/ Iceberg In the example below, the displayed buy order share sizes of 100, 200, and 100, respectively, will be executed against matching sell (or sell short) orders based on time priority. The reserve quantities of 900 and 300 will not become eligible for matching until all displayed shares at that price level have been exhausted. Display 100 200 100 Reserve (900) (300) 0 Arrival Time 9:30:00 9:31:00 9:35:00 Bid 10.00 10.00 10.00 The X-berg An order that is similar to an Iceberg order. However, instead of the displayed size being the same every time the order is refreshed, the displayed quantity is chosen at random by the system within a pre-specified range set by the customer. A customer sets the amount of shares to be displayed and the amount of shares to held in reserve when first entering the order. An example is as follows: Example – X-berg Quantity 50000 Price 10.00 Display Quantity 1000 Reserve 49000 Random Refresh Range +/- 500 Possible Display QTY Refreshes (STU = 100) 1500 Random (Maximum 1000 + 500) 1400 Random 1300 Random 1200 Random 1100 Random 1000 Random (Original Display Quantity) 900 Random 800 Random 700 Random 600 Random 500 Random (Minimum 1000 – 500) Chi-X Canada Non-displayed Orders Minimum Quantity A Minimum Quantity order, such as All-or-None (AON), is an order that will only execute if there is sufficient demand or supply for the entire order. These orders are not displayed in the Chi-X Canada book. - 13 - Mid Peg Order The Chi-X Canada Mid Peg Order is a non-displayed order that floats at the mid point of the NBBO which is calculated and updated in real time by Chi-X Canada’s Intelligent Order Book. Mid peg orders also provide Subscribers the option to enter a limit price with the order. Unique to this order type, when the NBBO spread is an odd increment, Mid Point Orders will execute at half penny prices. The Mid Peg Order is an ideal tool for Subscribers to reduce market impact and to be offered price improvement opportunities. The Mid Peg Order is only available from 9:30 a.m. to 4:00 p.m. Any Mid Peg Orders entered between 8:30 - 9:30 a.m. will be held by the system until 9:30 a.m. At 9:30 a.m. the orders will be “booked” and become eligible for trading. Mid Peg Orders entered after 4:00 p.m. will be rejected and any Mid Peg Orders remaining on the book at 4:00 p.m. will be cancelled. Hidden Order A non-displayed limit order that adheres to the same execution priority conditions as other nondisplayed order types. Execution Priority Non-displayed orders will always execute after lit orders at the same price. After all lit orders have been displaced, the hidden portion of an Iceberg or X-berg order is then given execution priority followed by fully hidden orders that are executed in price/time priority. Price priority for a re-priced non-displayed order is not affected by an underlying limit price. Time priority for a nondisplayed order that re-prices is determined by the time that each re-pricing occurs. When repricing multiple non-displayed orders to the same price level, the time sequence for the re-pricing will be determined by each order’s original timestamp or by the timestamp associated with the last re-pricing. Chi-X Canada Peg Order Types Pegging is only available from 9:30 a.m. to 4:00 p.m. Pegged orders entered between 8:30 9:30 a.m. will be held by the system until 9:30 a.m. At 9:30 a.m. the orders are “booked” and become eligible for trading. Pegged orders entered after 4:00 p.m. will be rejected. All Pegged orders remaining on the book at 4:00 p.m. will be cancelled. Primary – A “Primary Peg” buy/sell order will peg to the consolidated best bid/ask. Primary Peg orders can be entered as either displayed or non-displayed in the Chi-X Canada book, and subscribers also have the option of entering a limit price with the order. Mid – Mid-Peg orders are described above under Chi-X Canada Non-displayed Orders. Market – A “Market Peg” buy/sell order will peg to the consolidated best ask/bid adjusted by a trading increment as defined by UMIR. In order to prevent locked markets, Market Peg orders will execute at the best bid/ask adjusted by a penny for securities priced equal to or greater than $.50 and by a half-penny ($.005) for securities priced less than $.50. - 14 - Primary Peg orders can be entered as either displayed or non-displayed in the Chi-X Canada book, and subscribers will also have the option of entering a limit price with the order Peg Offset – An increment/ decrement offset of the peg price that allows a pegged order to become more passive/aggressive than the quote to which it is pegged. Example: a Primary Peg Buy order with a +$0.01 offset will peg to the consolidated bid price plus one cent. Execution priority: Execution priority for non-displayed pegged orders follows the same execution priority that was described above for “Chi-X Canada Non-displayed Orders”. Execution of any non-displayed pegged order or Hidden Order at the NBBO must also be in conformance with UMIR requirements that would allow for such executions. Execution priority for displayed pegged orders continues to follow price/time priority with its price and time priority being affected by re-pricings in the same manner as described below for dynamically re-priced orders. Pegged Order Handling From 8:30 - 9:30 a.m. Pegged orders will be accepted but will be held by the system until 9:30. At 9:30 a.m. the orders are “booked” and become eligible for trading. From 4:00 p.m. to 5:00 p.m. Pegged orders entered after 4:00 p.m. will be rejected. All pegged orders remaining on the book will be cancelled at 4:00 p.m. Time in Force Conditions IOC – An “Immediate or Cancel” (IOC) order is one in which any portion of the order that is not filled immediately is cancelled. FOK – A “Fill or Kill” order must execute as a complete order as soon as it becomes available on the market, otherwise the order is cancelled. DAY – A Day Order will remain live on the Chi-X Canada book for the duration of the trading day or until cancelled by the subscriber. At the end of the Chi-X Canada trading day (5:00 pm Eastern Time) all outstanding, unfilled Day orders will be cancelled. GTD – A “Good ‘Till Date” (GTD) order expires at the earlier of a specified Expire Time or the end of the Chi-X Canada trading day. At the end of the Chi-X Canada trading day (5:00 pm Eastern Time) all outstanding, unfilled Day orders will be cancelled. GTC – “Good ‘Till Cancelled” (GTC) orders will be cancelled at the end of the day. All orders that remain on the Chi-X Canada book expire and are cancelled at the end of the Chi-X Canada trading day (5:00 pm Eastern Time). - 15 - Chi-ControlsTM Risk Management Suite Customer Command Center The Customer Command Center is a web based application that provides Chi-X Canada Subscribers with a risk management tool enabling them to monitor and disable order flow originating from clients that are directly accessing the market. The Customer Control Center includes the following features: Displays the number of open orders resting on Chi-X Canada, sorted by UMIR ID; Displays the number of open orders that have been routed using Chi-X Canada’s; smart order router, sorted by UMIR ID; It allows the user to halt trading for an individual UMIR ID; It allows the user to halt trading for all registered UMIR ID's of a designated client; It allows the user to re-start trading for any individual UMIR ID or combination of UMIR ID's. Cancel on Disconnect Subscribers have the option to have all open orders cancelled upon disconnection to Chi-X Canada ATS. No-Self Cross This feature is enabled on a trader ID basis and will prevent the trader ID from trading with itself to avoid a “wash trade.” Subscribers can choose from one of the following implementations: Cancel the Active order Cancel the Passive order If the orders are different in share quantity, reduce the larger order and cancel the other one. Order Entry Parameters Price limit – Price limits are determined as a percentage of value from the last sale price. Different parameters are set for different priced securities. The settings are predetermined by Chi-X Canada in order to prevent erroneous orders from interacting with the order book. Share limit – Subscribers are able to set the maximum number of shares permitted per order per security. If an order is entered which exceeds the share limit, the order will be rejected and sent back to the Subscriber. Notional limit – Subscribers are able to set the maximum notional value per order per security. The notional value of a trade is calculated by the number of shares multiplied by the price of the security. If an order is entered which exceeds the notional limit the order will be rejected and sent back to the Subscriber. - 16 - Clearing and Settlement Clearing Chi-X Canada operates under the exchange clearing model. Locked-in subscriber trades are reported at the end of the day by Chi-X Canada to CDS. Subscribers report their trades to their custodians who will in turn report allocations to CDS. On T+1 Chi-X Canada Subscribers review the CDS trade comparison reporting based on trades submitted to CDS from Chi-X Canada and the custodian On settlement date CDS, via the CNS process, will debit/credit Subscriber custodians’ CDS ledger and bank account for the trades Settlement All trades done on Chi-X will settle regular way on T+3. In the case of a special direction for clearing and settlement from the primary exchange (as a result of an event such as de-listing, for example) Chi-X Canada will make the appropriate adjustments to indicate the special clearing (as agreed upon with CDS) to Chi-X Canada's end of day file before the file is shipped off to CDS. Because Chi-X Canada is a fully anonymous market, for instruments trading with a same day cash settlement Chi-X Canada will halt the symbol prior to the commence of trading at Chi-X Canada’s open at 8:30 a.m. Non-Standard Settlement Chi-X Canada will only accept standard settlement orders. In the case of a special direction for clearing and settlement from the primary exchange (as a result of an event such as de-listing, for example) Chi-X Canada will make the appropriate adjustments to indicate the special clearing (as agreed upon with CDS) to Chi-X Canada's end of day file before the file is shipped off to CDS. Chi-X Canada will not trade symbols with same-day cash settlements. Symbols with same day cash settlement will be halted on the system prior to the commencement of trading. - 17 - - 18 - APPENDIX A Trade-through and Locked and Crossed Market Order Re-pricing Condition Canada’s Order Protection Rule (OPR) requires all visible, immediately accessible, better-priced limit orders to be filled before other limit orders at inferior prices, regardless of the marketplace where the order is entered. As stated in the CSA’s Notice of amendments to NI 21-101 and NI 23-101, “the obligation to not trade through is owed by all marketplace participants to the market as a whole.” The purpose of the Rule is to ensure that if an order is entered on a market with the best price, it will be executed ahead of inferior priced orders irrespective of where the order is posted. OPR requires all marketplaces recognized under the ATS Rules to establish, maintain, and enforce, written policies and procedures that are reasonably designed to prevent trade-throughs on that marketplace. Chi-X Canada takes in external market data feeds from the transparent Canadian marketplaces (e.g. Chi-X, TSX, TSX-Venture, Pure, Omega, Alpha, and TMX Select) directly. These external market data feeds are consolidated to provide the matching engine with real-time market price information for the purpose of re-pricing orders that would otherwise trade-through. In addition, the matching engine also facilitates Subscriber compliance in not intentionally locking or crossing a market. In accordance with Chi-X Canada’s Order Protection Rule Policies and Procedures, when an order is received directly by Chi-X Canada, it compares the price of the order to the prevailing market for trade-through obligations (based on Chi-X, TSX, TSX-Venture, Pure, Omega, Alpha, TMX Select and Chi-X Canada itself) and will reasonably prevent a trade-through on its marketplace by re-pricing the order passively by one standard trading increment. Subscribers wishing to take direct responsibility for demonstrating they have complied with OPR may override this mechanism by entering a CSO order which is designated DAO orders for OPR purposes. The system will not reject orders because of trade-through. Should an order be entered at a price that would result in a trade-through or a locked or crossed market, the system will automatically re-price the orders as shown in the examples below. Orders that are re-priced will be given time priority behind any other orders at that price level irrespective of whether or not an order was entered as a market or limit order. In the case of an IOC or FOK order, the order will be cancelled back to the Subscriber if it is not executed as per the IOC or FOK instructions. Example #1 - Trade-Through Prevention (ILLUSTRATIVE) Consolidated Market Display Chi-X Canada Book Quote BID 10.10 10.09 ASK 10.13 10.14 Given the market conditions noted above, aggressively priced Buy and Sell orders will be repriced as described below. A SELL order entered at a price lower than the consolidated BID will be re-priced to equal the consolidated BID plus a trading increment as follows: Original Price - 19 - Order Re-price SELL Limit SELL Market 10.09 None (MKT) 10.11 10.11 A BUY order entered at a price greater than the consolidated ASK will be re-priced to equal the consolidated ASK minus a trading increment as follows: Order Price 10.14 None (Mkt) BUY Limit BUY Market Order Re-price 10.12 10.12 In circumstances where the prevailing market conditions change after a re-priced order has already been entered into the Chi-X Canada book, the matching engine performs dynamic, virtually instantaneous, real-time re-pricing in reaction to market data ensuring that the order has maximum execution potential within the constraints of the customers original order instructions. Note: Dynamic order re-pricing is only available between 9:30 a.m. to 4:00 p.m. (Eastern Time). Before 9:30 a.m. and after 4:00 p.m. (Eastern Time), orders will be re-priced only once and then remain static. In this circumstance, the order must be modified or cancelled and replaced in order to change the price. Example #2 - Dynamic Order Re-pricing: Market Order (ILLUSTRATIVE) Consolidated Market Display Chi-X Canada Book Quote BID ASK 10.10 10.13 10.10 10.14 Chi-X Canada Subscriber Order Re-pricing behavior is illustrated in the next table BUY Market Original Order Price Order Reprice None (MKT) 10.12 (MKT) MKT instruction is retained in memory in the matching engine The buy market order is re-priced to 10.12, preventing a trade through and a locked market. However, the original instruction of MKT is retained in memory in the matching engine. As a result, the order price will float with the inside ask adjusted by a trading increment until the order is cancelled or becomes eligible for execution on terms that would not violate tradethrough obligations. Updated Consolidated Market Display Chi-X Canada Book Quote BID ASK 10.12 10.13 10.12 (MKT) 10.14 Spread narrows because Chi-X Canada is the new inside bid Following a quote refresh the prevailing market conditions change and the consolidated inside ask updates to 10.14. The market buy order would not cause a trade-through if executed - 20 - against the 10.14 sell order on Chi-X Canada. As a result the market order becomes eligible for execution and a match occurs at 10.14. Updated Consolidated Market Display Chi-X Canada Book Quote BID ASK 10.12 10.14 10.14 (MKT) 10.14 Execution occurs at 10.14 Note: Dynamic order re-pricing is only available between 9:30 a.m. to 4:00 p.m. (Eastern Time). Before 9:30 a.m. and after 4:00 p.m. (Eastern Time), orders will be re-priced only once and then remain static. In this circumstance, the order must be modified or cancelled and replaced in order to change the price. Example#3 - Dynamic Order Re-pricing: Limit Order (ILLUSTRATIVE) Consolidated Market Display Chi-X Canada Book Quote BID 10.10 10.09 ASK 10.13 10.15 Chi-X Canada Subscriber Order Re-pricing Behavior is illustrated in the next table Original Order Price BUY Limit 10.14 Order Re-price 10.12 (10.14) 10.14 limit instruction is retained in memory in the matching engine The buy limit order is re-priced to 10.12 in order to prevent a trade-through. However, the original instruction of a 10.14 limit is retained in the memory of the matching engine. In this circumstance, the order price will float with the inside ask adjusted by a trading increment until the order is cancelled or becomes eligible for execution that would not violate trade-through, up to the original limit price. BID Updated Consolidated Market Display Chi-X Canada Book Quote ASK 10.12 10.12 (10.14) 10.13 10.15 Spread narrows because Chi-X Canada is the new inside bid Following a quote refresh the prevailing market conditions change and the consolidated inside ask updates to 10.15. There is a sell order on Chi-X Canada at 10.15 but the limit buy order would not be eligible for execution because it is capped at the original 10.14 limit instruction. BID ASK - 21 - Updated Consolidated Market Display Chi-X Canada Book Quote 10.14 10.15 10.14 10.15 10.14 limit top is reached and enforced – No execution Note: Dynamic order re-pricing is only available between 9:30 a.m. to 4:00 p.m. (Eastern Time). Before 9:30 a.m. and after 4:00 p.m. (Eastern Time), orders will be re-priced only once and then remain static. In this circumstance, the order must be modified or cancelled and replaced in order to change the price Please refer to the Chi-X Canada Canada FIX specification for detailed descriptions of how order types are implemented. - 22 - APPENDIX B Chi-X Canada Clearly Erroneous Trade Policy Definition - the execution of an order to buy, sell, or sell short a security, entered in error (e.g. in terms of price, quantity, side or symbol) at a price substantially away from, or inconsistent with, the prevailing market price for that security at the time of execution. Chi-X Canada reserves the right to initiate a review of a clearly erroneous trade, regardless of whether or not a Subscriber request has been submitted, if it determines in its sole discretion that circumstances warrant such a review. In such instances Chi-X Canada will notify the relevant Subscriber trading contacts, as provided by the Subscriber, via electronic mail or telephone as conditions warrant, that a trade will be reviewed pursuant to this policy. Market participants that are not relevant parties will not be notified that a trade is under review. Chi-X Canada designated principals, with the consent of IIROC will exercise their sole discretion under this policy to cancel or amend a trade, where needed, that is the result of a Chi-X Canada system error or malfunction. Furthermore, Chi-X Canada will follow direction from IIROC to cancel, vary or correct a trade and facilitate the cancellation or amendment of a trade when both counterparties to the trade agree to the trade cancellation or amendment. In this circumstance, notification will be made to IIROC. Decisions will be made in a timely fashion and in all cases a decision will be made no later than the close of business on the trading day of the occurrence which led to the review being initiated. Chi-X Canada will promptly notify the relevant parties and IIROC via electronic mail, and telephone as conditions warrant, of its decision to cancel a trade or trades. After Chi-X Canada processes the cancellation or amendment of any clearly erroneous trade, the trade is null and void. ©2013 Chi-X Canada ATS Ltd., member IIROC/CIPF. All Rights Reserved. CHI-X is a registered trademark in jurisdictions throughout the world. - 23 -
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