Allocation (Pro-Rata) Algorithm for CME Eurodollar Options with LMM and TOP Order
In late February 2006, the allocation (pro-rata) algorithm for options on CME Eurodollar futures was enhanced with TOP order matching elements. This matching enhancement improves trading opportunities for traders who enter the market early at a given price.

TOP Order Matching

• An order receives TOP order status when it betters the current bid (or ask) price and its quantity is at least 50 contracts.
• A TOP order matches 25 percent of the incoming order match quantity.

LMM Order Matching

• If an  LMM order is at the same price level as the TOP order, the LMM order will receive the LMM match percentage allocation before the TOP order allocation.
  • TOP orders receive 25 percent of the incoming order allocation after the LMM order allocation is applied.
• An LMM order can also be a TOP order
  • LMM matching rules apply first;
  • TOP order matching rules apply thereafter.

Pro-Rata Order Matching

• The available incoming order quantity for the Pro-Rata match round is determined after TOP order and LMM allocation matching occurs.

All fills are rounded down to the nearest integer. Any remaining lots due to rounding are allocated to the order that has the initial largest resting quantity. If there are multiple orders with identical initial largest resting quantity, the remaining quantity is evenly split among those orders. If it is impossible to evenly allocate the remaining quantity among those resting orders, then remaining lot allocation occurs on a 1-lot FIFO basis until the remaining quantity is fully allocated. As such, a resting order can receive a 1-lot allocation.

Allocation (Pro-Rata) Algorithm for CME Eurodollar Options with LMM and TOP Order Example

• TOP order percentage = 25 percent
• LMM percentage = 5 percent for both LMM

First Allocation: LMM Percentage Calculation

• Trader DEF is allocated 50 lots
  • 5 percent of the incoming 1000-lot order
• Trader KLM is allocated 50 lots
  • 5 percent of the incoming 1000-lot order

Second Allocation: TOP Order Percentage Calculation

• Trader ABC with TOP order is allocated 250 lots
  • 25 percent of the incoming 1000-lot order

Third Allocation: Pro-Rata Calculation

• The incoming order has 650 lots remaining, to be allocated among the five resting orders.
• The aggregated remaining resting quantity among the five resting orders is 3400 lots.
  • Trader ABC's pro-rata allocation is 95 lots
    • (500/3400 * 650)
  • Trader DEF's pro-rata allocation is 181 lots
    • (950/3400 * 650)
  • Trader HIJ's pro-rata allocation is 191 lots
    • (1000/3400 * 650)
  • Trader KLM's pro-rata allocation is 85 lots
    • (450/3400 * 650)
  • Trader NOP's pro-rata allocation is 95 lot
    • (500/3400 * 650)

Fourth Allocation: Remaining Quantity Calculation

• There are three lots remaining to be allocated.
  • Both Trader DEF and Trader HIJ receive a 1-lot since they both represent the largest initial order size.
  • Trader DEF receives the last 1-lot because they have FIFO priority over Trader HIJ.

Please see the CME Globex Price Banding by Product for the list of products which use the allocation (pro-rata) algorithm for CME Eurodollar Options with LMM and TOP order.

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