CME Globex anti-HFT push - Big problem???

[spearchew]

http://www.cmegroup.com/globex/resources/cme-globex-messaging-efficiency-program.html

http://www.cmegroup.com/globex/files/CMEMessagingProgram.pdf

http://www.cmegroup.com/globex/files/benchmarks.pdf

Hi there,

The CME directive I have linked to above, was recently brought to my attention. I am still going through it, trying to make sense of it, and I would appreciate input from more intelligent posters than I.

My basic understanding for the moment is as follows:
Due to anti-HFT sentiment, CME is discouraging traders from excessive "messaging" (e.g. Orders, Order modifications etc) to the exchange...

"Class A firms (ed: Clearing Firms?) must not exceed product-specific product benchmarks."

They list what those benchmarks are for the major CME products, as calculated by the following formula:

(Total Product Messaging / Total Product Volume + Variation)

So the Class A firms own ratio must not exceed those benchmarks. For CL the benchmark is listed as 35:1

The Class A firm volume ratio = Total Class A Firm Messaging / Total Class A Volume

So let me get this straight... Clearing firms are expected to submit only 35 messages for every 1 x CL traded? I must have misunderstood that, because it is rediculous.

I myself have an automated strategy that is constantly modifying orders... every second or two, at a minimum. So that puts me in the 40,000 : 1 ratio bracket???

I must have this completely wrong, because surely there are firms out there modifying orders dozens of times every single second, dwarfing the volume they themselves actually trade?

My thanks to anyone who is more familiar with these rules, and can calm me down LOL.

[NinjaTrader_Brett]

Hello,

I did a quick read through.

My understanding is that is a ratio, however you are treating it like a absolute value.

Meaning, 35:1 does not mean 35 trade messages per 1 contract.

What it means is that if the clearing firm trades 100,000 contracts of CL on its own per day, that means that 100,000 X 35 = 3,500,000. Therefor 3 and half million messages are allowed to be processed before the exchange processed a fee to the clearing firm. (That fee would then most likely be passed down to you the trader via your commissions).

Due to the fact that you have no way to know how much daily volume the clearing firm of your choice clears, there is no way for you to know if this is something you would need to worry about. You would want to bring this up with your broker to make sure this wouldn't effect you but most likely they wont know until the program starts.

[spearchew]

Thanks for that - I agree.

I've put something together, it is starting to make a bit more sense to me.

I think these markets are pathetic.

Whether it will cause me a problem or not remains to be seen - I'm banking everything on a strategy that I have not yet deployed IRL, therefore the broker hasn't had a chance to forward any fines yet...

http://s9.postimage.org/q0cc38999/CME_fail.png