Custom Carries
LME allows users to create spreads, referred to by LME as “carries,” which consist of any two contracts of the same product.
- A Custom Carry contract must always have two legs with a ratio of 1 x -1
- Only intra-product carries may be created
- The front leg (buy) must have an earlier prompt date than the back leg (sell) of the Custom Carry contract
- The net price and quantity for the carry should be specified while creating the custom spread
- Custom Carries will have a minimum tick size of 0.01
Once LME receives an order for a carry, it will broadcast those carries to all applications connected to LME at that time. To place a Custom Carry Buy order, users must buy one Front Month contract and sell one Back Month contract. To place a Custom Carry Sell order, users must sell one Front Month contract and buy one Back Month contract. For carry orders, the order price is the net difference in trading price between the buy leg and sell leg.
Exchange Implied IN and Implied OUT
An implied order is a synthetic order generated in an order book from two (or more) orders linked via a multileg (strategy) order book in the same contract. For example, M1 bid and 3M offer can create an implied bid in the M1-3M Carry. This can add liquidity to less liquid order books by leveraging liquidity in more active order books.
The following implied types are supported:
- Implied In — derived from explicit orders in outright order books into the legs of a strategy (as the example above). See Implied In from Outright Orders.
- Implied Out — derived from explicit orders in strategy order books and an outright order in one of the individual underlying legs. See Implied Out to Outright Orders.
An M1-3M Carry through which an implied order can be created is known as an implied route. The LME’s prompt date structure allows for a vast number of Carry combinations; therefore, the number that make use of implied generation is limited to LME-defined routes configured at contract level.
The best implied bid or offer price is calculated using the best explicit prices from the other order books and validated against price bands/limits. Any implied orders, either outrights or Carries, that fall outside of price bands/limits will not be created and entered into the order books. It may not be possible to use the exact calculated price as this could either be outside price bands/limits or not an exact multiple of the tick size, i.e. the implied price is off tick. To ensure that a valid price is generated, the price will be rounded to the nearest valid price for the order book. Implied bids are rounded down to the nearest valid price and implied offers are rounded up to the nearest valid price. Any rounded price is validated against price bands/limits.
If the rounded implied price is executed, the price improvement (the difference between the calculated price and rounded price) is assigned to the LME-configured allocation for the contract
TAS Futures Contracts
Participants can use a TAS (Trade at Settlement) order book on LMEselect to enter an order to buy or sell a contract (during the course of the trading day) at a price that is equal to, or a number of ticks above or below, the yet to be established 3-month Closing Price.
Once the Closing Price is discovered, the TAS order delivers the underlying 3-month contract at the Closing Price, plus or minus the traded TAS price.
“Trade at settlement” is so called because TAS functionality on other markets allows participants to trade the unknown “settlement price” — the price which determines daily margin. On LME, the price used to determine daily margin, discovered after 16.30, is known as the “Closing Price”, not the “settlement price.”
Rolling Prompts
The delivery date of any LME contract, by which time either the position must be closed or a delivery will take place, is known as the prompt date. So the final trading day — the last day a position can be closed — is two days before the prompt date.
An LME contract with a prompt date in 1 trading day is a “tom” or tomorrow contract while a contract with prompt date in 2 trading days is a cash contract. Exchange trading in an LME contract ceases the trading day prior its prompt date — to give the exchange time to process physical settlements for the next day.
The 3-month LME rolling contract (contract with the 3-month prompt date) is the most liquid contract on any given trading day — it’s the anchor price for the market. Most participants tend to “trade out” of the 3-month contract and “roll” into a contract with the desired prompt date.
Merged Order Books
LMEselect10 supports the feature that multiple tradable instruments can share the same prompt/expiry date on a specific trading day. In these circumstances, the tradable instruments are merged into a single market order book, centralizing liquidity according to the prompt/expiry date.
With outrights, two outright tradable instruments will merge, one with a rolling prompt date and the other with a single prompt date.
Note Two outright tradable instruments each with a rolling prompt date will never merge. With strategies, two strategy tradable instruments will merge when one leg is in a rolling prompt and four strategy tradable instruments will merge when two legs are in a rolling prompt.
Due to the complexities involved, LMEselect10 will limit the merging of strategies to simple calendar spreads, i.e. LME Carries.
15 Levels of Aggregate Depth
LME supports 15 levels of market depth with LMEv10.
LMESource provides a view of 15 price depths of aggregate order book for the LME Markets. This view can be visualized as a number of rows in a table for each of the bid and ask sides. On each side there are a number of rows showing the aggregate quantity available at a number of price levels.
Indicative Opening Price
The Indicative Opening Price (IOP) is the predicted opening trade price and volume which is calculated using the uncrossing algorithm during pre-open.
If there are no crossed prices, no IOP is calculated or disseminated. If a tradable instrument does not have a crossed order book but does have both a bid and offer price then a mid-price will be calculated and published instead of the IOP. It will be identified as the Indicative Opening Mid-Price (IOMP). This is only calculated if the bid/offer spread is within a percentage tolerance of the previous electronic closing price for the prompt. For the Tom prompt, this is the previous day’s Cash closing price. For a merged order book, the previous day’s closing price is that of the prompt that takes precedence. If a midprice is available then this is published as an indicative price.
The aim of uncrossing is to achieve a price at which the most volume is traded.
IOPs are only calculated for outright futures. Strategy markets or implied prices are not included in the calculation. The dissemination of the IOP only occurs when the recalculated price changes from that previously issued. If a state condition is imposed during pre-open, a trading halt will result in the cancellation of all orders; therefore, no further indicative prices will be generated. A trading pause will retain orders and permit cancellation by the originator which may result in an updated indicative price.
Synthetic Iceberg Orders (TT Iceberg)
A TT Iceberg order executes a large volume order by breaking it into smaller disclosed orders, publicly displaying only the specified portion instead of the full order quantity. When one disclosed portion fills, the next portion is entered into the market. This process continues until the order is filled.
See TT Iceberg Order for more details.