Opening Price Calculation
If there are complex orders on the book at the completion of the Queuing Period during an Opening or Re-Opening that can cross, the system will determine the Opening Price using a Volume Maximizing Imbalance Minimizing (VMIM) algorithm, which computes the greatest number of complex contracts can trade. Where multiple price levels would result in the same number of contracts traded, the price with the lowest resulting absolute imbalance is selected as the opening price. The following examples illustrate the VMIM algorithm application to opening of Complex Instruments.
Example 1: Equilibrium Price Calculation
Equilibrium price is $1.96 since most contracts (400) can be done at this price.
Example 2: Finding the Imbalance Minimizing Price
If more than one price results in the same amount of contracts being executed, the price where the Buy or Sell Imbalance is the smallest will be chosen.
In the above example, both the $1.97 and $1.96 price levels result in 400 contracts being executed. Since there is a 4,000 contract Sell Imbalance at the $1.97 price level and a zero imbalance at the $1.96 price level, the system would choose $1.96 as the opening price.
Example 3: Volume Based Tie Breaker (VBTB)
If more than one equilibrium price results in the same maximum number of contracts executed and have the same "smallest" imbalance, the system will choose the price closest to the Volume Based Tie Breaker (VBTB), where the VBTB would be the midpoint of the SNBBO for the given series.
For this example, assume the SNBBO is $1.97 x $1.98 Midpoint = $1.975. The $1.97, $1.96, and $1.95 price levels all result in 100 contracts being executed with a zero imbalance. Since $1.97 is closest to the VBTB of $1.975, the system would choose $1.97 as the opening price.
Example 4: Midpoint of Imbalance Minimizing Prices
If more than one equilibrium price results in the same maximum number of contracts executed, have the same "smallest" imbalance, and there is no VBTB available, the system will choose the midpoint of the highest and lowest potential opening price levels.
If the potential opening price levels are $1.97, $1.96, and $1.95 with all price levels resulting in 100 contracts being executed with a zero imbalance, and the midpoint of the highest and lowest potential opening prices of $1.97 and $1.95 would be $1.96, the system would choose $1.96 as the opening price.
If the midpoint of the potential opening prices results in an invalid price, the system will round down to the nearest permissible increment.
If the potential opening price levels are $1.96 and $1.95, and the midpoint of the $1.96 and $1.95 price levels is $1.955, the system would round up and choose $1.96 as the opening price.