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Market-Making and Liquidity provisioning
Market-Making and Liquidity provisioning
Eurex envisages two types of Market-Making/Liquidity provisioning activities for Futures and Options:
- (Regulatory) Market-Making, according to MiFID2
- (commercial) Liquidity provisioning.
These are described in the following.
Regulatory Market-Making (RMM) applies if the conditions of section 52 of the Eurex Exchange Rules applies, which ultimately refers to Commission Delegated Regulation (EU) 2017/578 Article 1.? RMM is regulated under public law.
All Eurex Participants who fulfil the requirements stated in the Regulation have to apply for admission as (Regulatory) Market Maker at Eurex. The admission as Regulatory Market Maker in accordance with paragraph 52 of the Exchange Rules will be an admission for all Eurex products. As a result, the individual registration per product as announced in section 1.3. of Eurex circular 102/17 is no longer required and the eListing Tool will not be made available for the purposes of RMM.
An initial application as Regulatory Market Maker has to be filed until 28 February 2018, at the latest. The application form is available under the following link:
Once registered as Regulatory Market Maker, all follow-up requirements according to Eurex Exchange Rules, section 53 need to be fulfilled. According to paragraph 53 of the Exchange Rules, Regulatory Market Makers will have to fulfil the quotation requirements in at least one product on a monthly average. However, the respective competent authority of a Market Maker may impose deviating rules.
The maximum bid-ask range for Regulatory Market-Making is available under the following link:
Report TD983 on the Common Report Engine will be available for all Eurex participants.? The report will provide an overview of the fulfilment of RMM criteria for all Eurex Participants and for all products.
Liquidity provisioning is a commercial activity outlined in the “Eurex Liquidity Provider Framework”. All Eurex participants can participate in the Framework by signing the Eurex Liquidity Provider Agreement (LPA). The LPA is a tri-parti agreement between the Eurex participant, Eurex Frankfurt AG and Eurex Clearing AG.
Further to the LPA, the following elements take the form of a supplement to the LPA and are integral part of it:
- General Supplement (GS) to the LPA
- Product Specific Supplements to the LPA.
Further to these documents, the Price List of Eurex Clearing AG applies.?
These documents contain all Liquidity Provider requirements and incentives that are available upon fulfilment of the requirements.
For all Liquidity Providers, quotation performance and payout of incentives will be performed automatically for all Eurex products. No subscription (e.g, usage of eListing Tool) on a product-by-product basis is necessary.
Eurex Liquidity Provider Framework
List of Eurex Regulatory Market Makers?and Liquidity Providers
According to Article 7 of Commission Delegated Regulation (EU) 2017/578, Eurex is required to publish information on Market Makers and Liquidity Providers.
The admission as Regulatory Market Maker in accordance with paragraph 52 of the Exchange Rules is an admission for all Eurex products.
Risk protection for Market Makers
The Eurex? system provides Market Makers and Liquidity Providers in options in Basis Building Block and Package Building Block with various features for system-based risk protection. With these tools Market Makers and Liquidity Providers can significantly constrain operational and market risks.
Market Maker protection tool
The Market Maker protection tool is aimed at preventing too many simultaneous trade executions on quotes provided by a Market Maker or Liquidity Provider, offering additional control of the market risk.
The basic principle can be envisioned as a counter, counting the number of traded contracts per product on Market Maker's or Liquidity Provider’s quotes within a time frame of some seconds that the Market Maker or Liquidity Provider can define.
Once the time has elapsed the counter is set to zero and restarted. If the counter exceeds a threshold level defined by the Market Maker or Liquidity Provider, all remaining quotes are put on hold. Market Makers or Liquidity Providers can define three threshold values in the counter:
- Volume: total number of contracts
- Vega: absolute number of contracts purchased reduced by the number of contracts sold
- Delta: absolute number of (long calls + short puts) - (short calls + long puts)?
- Level 1: Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast)
- Level 2: Commission Delegated Regulation (EU) 2017/578
- Level 3: ESMA Guidelines: “Transaction reporting, order record keeping and clock synchronisation under MiFID II”. ESMA/2016/1452
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