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Automated Quote Updates

Once the Market Maker Peg order has published a quote for a given security, the quote will not be refreshed until it falls outside of a band around its entered price. The band is presently defined to be 1% on the inside and 1.5% on the outside (these percentages are relative to the Reference Price):

  • A Market Maker Peg Bid in a Tier 1 NMS Stock under the Limit Up-Limit Down Plan will be automatically updated during the 9:45 a.m. - 3:35 p.m. ET trading period if it falls outside of the range (NBB x .905) to (NBB x .93).
  • A Market Maker Peg Bid in a Tier 1 NMS Stock under the Limit Up-Limit Down Plan will be automatically updated during all other trading periods if it falls outside of the range (NBB x .785) to (NBB x .81).
  • A Market Maker Peg Bid in a Tier 2 NMS Stock under the Limit Up-Limit Down Plan will be automatically updated during the 9:30 a.m. - 4:00 p.m. ET trading period if it falls outside of the range (NBB x .705) to (NBB x .73).
  • A Market Maker Peg Offer in a Tier 1 NMS Stock under the Limit Up-Limit Down Plan will be automatically updated during the 9:45 a.m. - 3:35 p.m. ET trading period if it falls outside of the range (NBO x 1.07) to (NBO x 1.095).
  • A Market Maker Peg Offer in a Tier 1 NMS Stock under the Limit Up-Limit Down Plan will be automatically updated during all other trading periods if it falls outside of the range (NBO x 1.19) to (NBO x 1.215).
  • A Market Maker Peg Offer in a Tier 2 NMS Stock under the Limit Up-Limit Down Plan will be automatically updated during the 9:30 a.m. - 4:00 p.m. ET trading period if it falls outside of the range (NBO x 1.27) to (NBO x 1.295).

The following diagram and detailed example illustrate how price bands are used to determine when a quote refresh will occur. An NBBO update that causes an existing Market Maker Bid or Ask quote to fall outside of the price band results in a quote refresh as demonstrated in the diagram that follows.



Example: Consider an NBBO at $10.00 X $10.01 in a Tier 1 NMS Stock under the Limit Up-Limit Down Plan (the Security) at a time of 9:35AM ET.

A Cboe Market Maker Peg is entered to buy for one round lot at $8.00 (10.00 x .8) (the Market Maker Bid) and a Market Maker Peg is entered to sell for one round lot at $12.01 (10.01 x 1.2) (the Market Maker Offer) in the Security. The price of the orders will be calculated using a Peg Price Percentage of 20%, as set forth above.

Assume that the NBBO for the Security moves to $10.09 X $10.10. The current Market Maker Bid of $8.00 will not be re-priced because it will remain between the price bounds of the NBB (Lower Bound: $10.09 x .785 = $7.921; Upper Bound: $10.09 x .81 = $8.173). The current Market Maker Offer of $12.01 will fall outside of the range of the price bounds of the NBO (Lower Bound: 10.10 x 1.19 = $12.019; Upper Bound: 10.10 x 1.215 = $12.272), so the Market Maker Offer will be re-priced to $12.12 (10.10 x 1.2).

Assume that the NBBO moves back to $10.00 X $10.01. The Market Maker Bid ($8.00) will remain within the price bounds of the new NBB (Lower Bound: 10.00 x .785 = $7.85; Upper Bound: 10.00 x .81 = $8.10) and, thus, the Market Maker Bid will not change. Similarly, the current Market Maker Offer of $12.12 will still fall within the price bounds of the NBO (Lower Bound: 10.01 x 1.19 = $11.912; Upper Bound: 10.01 x 1.215 = $12.162) and, thus, the Market Maker Offer will not change.

At 9:45 a.m. ET, the Peg Price Percentage moves to 8% and the Cboe Market Maker Peg order will automatically re-price the Market Maker Bid to $9.20 (10.00 x .92) and the Market Maker Offer to $10.81 (10.01 x 1.08).

Assume that the NBBO for the Security moves to $9.89 X $9.90. The existing Market Maker Bid of $9.20 will now fall outside the price bounds of the NBB (Lower Bound: 9.89 x .905 = $8.95; Upper Bound: 9.89 x .93 = $9.198), so the Market Maker Bid will be re-priced to $9.10 (9.89 x .92). As the current Market Maker Offer of $10.81 will remain within the bounds of the NBO (Lower Bound: 9.90 x 1.07 = $10.593; Upper Bound: 9.90 x 1.095 = $10.841), the Market Maker Offer will not change.

Assume that the NBBO now drops to $9.86 X $9.87. The Market Maker Bid of $9.10 will remain within the price bounds of the new NBB (Lower Bound: 9.86 x .905 = $8.923; Upper Bound: 9.86 x .93 = $9.17) and, thus, the Market Maker Bid will not change. The Market Maker Offer of $10.81, however, will now fall outside the price bounds associated with the new NBO (Lower Bound: 9.87 x 1.07 = $10.561; Upper Bound: 9.87 x 1.095 = $10.808) and the Market Maker Offer will be re-priced to $10.65 (9.87 x 1.08).

As the NBBO moves, the Peg Price Percentage of 8% will continue to be used to determine the lower and upper bounds until the end of the time period.

Assume the NBBO is $10.00 X $10.01 at 3:35 p.m. ET at which time the Peg Price Percentage of 20% goes back into effect. At this point, the Cboe Market Maker Peg order will automatically re-price the Market Maker Bid to $8.00 (10.00 x .8) and the Market Maker Offer to $12.01 (10.01 x 1.2).

Note that all quote calculations will be rounded to the most aggressive displayable tick size.

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