Description
of price improvement Process
Starting a Price Improvement Process
For information regarding actual price improvement trades including daily totals and average price improvement, click here.
Customer orders designated for Price Improvement are submitted to the BOX market with a "contra" order, the Improvement Order. The Improvement Order is on the opposite side of the market from the original customer order and must provide a bid higher (offer lower) than that posted on the current BOX market for the instrument and greater than the bid (less than the offer) of the National Best Bid Offer (NBBO) broadcast.
The Improvement Order may not be cancelled by the introducing OFP/broker once accepted for processing by the BOX trading engine. During the PIP, the OFP may only modify his contra price in favour of the customer side.
Competition During the Improvement Process
Duration of PIP
The PIP process is concluded at the end of a three second auction period. The precise time that a PIP will end and the related orders are matched is provided to BOX Participants as part of the information broadcast with the original Improvement Order that announces the initiation of a PIP.
In certain cases, a PIP may be terminated prior to the completion of the full three second period. Examples of this are provided in the demonstration of the PIP on this site. Generally speaking, a PIP is terminated prematurely in the case where it is in the customer order's interest to do so due to new orders on the BOX Central Limit Order Book which are unrelated to the PIP, but can provide the PIP customer side with a better execution price than that available from the improvement orders.
Conclusion of Price Improvement Process
At the conclusion of the PIP, Improvement Orders, any "unrelated, normal" orders and PIP Market Maker Orders are matched with the client side of the order at the end of the PIP on a price/time priority basis. No Participant has a "step up and match" or "look-back" right.
There are however exceptions to the time priority matching rule (there are never any exceptions to price priority on BOX).
 |
40% Guarantee to Initiator of PIP
Where the introducing broker’s final price (since he may also improve his original price in response to market maker competition) is equal to a price at which the customer order is going to match, the OFP is assured at least 40% of the quantity even where other participants may have time priority on him at that price. This 40% priority is applicable to the inititator of the PIP regardless of whether the "professional side" of the PIP initial order is broker dealer professional, Market Maker or public customer.
Exceptions to 40% Priority to PIP Initiator Where "Professional"
However, where the initiator is a professional account of a BOX Participant, this forty percent execution may only be allocated after all orders at the same price on behalf of public customers, "away" market makers and "away" professionals have been filled.
Exceptions to 40% Priority to PIP Initiator Where "BOX Market Maker"
If the initiator is a BOX Market Maker and the PIP execution price has not been improved since its initial submission or where the BOX Market Maker does not have time priority over a public customer order, the BOX Market Maker must alse cede any execution due to this forty percent priority to the public customer orders at the same price.
|
|
Market Maker Priority at PIP Matching
In some cases, there will be a BOX Market Maker with time priority over other competing improvement orders participating in a given PIP. Where a BOX Market Maker is posting an order equal to or better than NBBO on the BOX central limit order book at the instant that a PIP is initiated and that Market Maker also has time priority on the BOX book ahead of any other BOX Market Maker order or quote, that Market Maker will be designated Market Maker "Prime" (MMP) for the PIP.
If the MMP participates in the PIP and at the end of the process he has posted an order which is executable against the customer order, his order will have a priority over those of all other Participants, excepting the OFP, for up to one-third of the quantity available for execution at that price limit (after the execution of the OFP's 40%, where applicable).
|
|
Public Customer Order Priority at PIP Matching
At a given PIP matching price, all orders on behalf of public customer order must be filled prior to any trade allocation to orders on behalf of professional accounts submitted by BOX Participants (whether the OFP PIP order, a competing order or an "unrelated" order) as outlined above.
BOX Market Makers may also be required to cede any trade executions to public customers at the same price at the end of the PIP, but only where the BOX Market Maker trade allocation was due to his being the initiator of the PIP (see below). The BOX Market Maker which initiated a PIP and has time priority over a public customer order at the end of a PIP is not required to cede to a public customer order except where no improvement had occured. Where an improvement order of a BOX Market Maker (eg a non PIP initiation order) has time priority over a public customer order, the Market Maker does not have to cede priority.
|
|
"Away" Market Maker and "Away" Professsional Priority in PIP Matching
Orders on behalf of BOX professional accounts must cede priority to "away" professional and market maker orders at the same price at the end of a PIP. |
Other Comments Regarding the PIP
While the descriptive text above speaks in general terms typically of an OFP initiating a PIP order on which one side is a public customer order and the other side is the OFP's proprietary account ("professional"), the process is actually more flexible. For example, both sides of the PIP order could be for public customers or both sides could be professional orders. Similarly, a PIP may be initiated by a BOX Market Maker (rather than an OFP as in the previous discussion above).
In the case where the PIP was initiated by a BOX Market Maker and the matching price at the end of the PIP has not been improved by the Market Maker, the forty percent "guarantee" to the Market Maker must be ceded to any of the three account types having orders at the same price as outlined above in "OFP Priority at PIP Matching".
PIP Examples
Please click here to view examples of the PIP. The examples reflect the process as presently described in the proposed BOX Trading Rules. They are of course subject to final regulatory approval by the SEC.
There is a Patent Pending on the BOX market model, including the PIP. |
