Compression Regulatory Capital Benefit Specification

Multilateral compression produces a portfolio of trades that attempts to deliver maximum value to all participating TPHs while satisfying all cost and risk constraints specified by all TPHs. The analytics that are used to determine the "best" compression portfolio require that TPHs assign a "benefit" to closing one contract of positions in each option presented in the input file. The compression analytics use the benefit value to preference closing positions with higher benefit when selecting among alternatives that satisfy all constraints. The regulatory capital benefit for each position is specified by TPHs in the close_benefit field associated with each position row in the input file (rows 4 and above).

The close_benefit value is a TPH-specified measure of the regulatory capital benefit to the TPH for closing one contract (i.e., accounting for the 100 contract multiplier of SPX/SPXW) of the position in the associated option. TPHs are free to express the regulatory capital benefit in units meaningful to the TPH, which may be CEM, RWA, SA-CCR or other proprietary measure that expresses relative value realized from closing positions in options in the positions submitted for compression. The value provided in the input file must be a non-negative floating point value with two decimal point precision. Values provided with additional precision are rounded to two decimal points. Zero values are allowed for close_benefit for a subset of options positions. When TPHs opt-in to multilateral compression, a submission with all zero values for close_benefit will be rejected at upload time. Note this is not the case when users opt-in for match data service only as close_benefit is ignored in the match data generation process; i.e., all zero values for close_benefit is allowed for uses of match data service only.

The total regulatory capital benefit provided to a TPH as a result of a compression portfolio is the sum of the absolute traded contract quantity (which may be zero) multiplied by the TPH-specified close_benefit for all options comprising the portfolio. Regardless of whether a traded quantity is negative (a sell trade to close or partially close a long position) or positive (a buy trade to close or partially close a short position) the accrued benefit is positive.

For example, an option position with a size (qty) of 100 and close_benefit of 5,000 that trades -20 (i.e., closes 20 of the 100 contract long position). The contribution to the total benefit for the option will be 20 * 5,000 = 100,000. Similarly, for an option position with a size (qty) of -50 and a close_benefit of 4,000 that trades +20 (i.e., closes 20 of the 50 contract short position) the contribution to the total benefit for that option will be 20 * 4,000 = 80,000.