CME has implemented an LMM program for certain products to enhance liquidity. The LMM designation is given to those individuals chosen by CME to make a two-sided market in an assigned contract. LMMs enjoy the benefit of LMM matching privileges (a guaranteed allocation percentage of incoming orders, as specified below) and associated pricing concessions in return for meeting CME-determined LMM market obligations.

The LMM algorithm has two versions: with and without TOP order functionality.

The following LMM assumptions underlie both algorithm versions:

• Multiple LMMs can be assigned per contract.
• Different LMMs may have different allocation percentages assigned per contract.
• An LMM may have multiple orders on the same side of the market for their assigned contract.
• Total LMM matching privileges per contract vary by product. However, the maximum total allocation guarantee to LMM per trade will not exceed 50%.

A. LMM Algorithm With TOP Order Functionality

• A TOP order is an order that betters that side of the market (a.k.a. market turner). Only one order per side of the market (buy side or sell side) can have TOP order priority. It is possible a TOP order does not exist for one or both sides of the market (e.g. an order is a market turner, but is subsequently canceled).
• If a TOP order is present and its price level elected, the order is matched first regardless of whether or not the order belongs to a designated LMM.
• If a TOP order belongs to an LMM, the order will be matched first and will not be included in the following calculations:
  • If the LMM has a single order at an elected price level, it will match N% of the remaining incoming order quantity, with N equal to the LMM's allocation percentage. However, the matched quantity will not exceed the LMM's order quantity.
  • If the LMM has multiple orders at an elected price level, then the LMM quantity is aggregated and will match N% of the remaining incoming order quantity. Multiple LMM orders are matched on Time Priority basis until N% quantity allocation is fulfilled.
  • All remaining resting orders at an elected price level (LMM as well) are matched according to Time Priority.

It is important to note that a user will lose their order priority (for TOP orders) when the order is changed under any one of the following scenarios:

• An increase in quantity
• A change in price
• A change in account number

B. LMM Algorithm Without TOP Order Functionality

• If the LMM has a single order at an elected price level, it will match N% of the incoming order quantity, with N equal to the LMM's allocation percentage. However, the matched quantity will not exceed the LMM's order quantity.
• If the LMM has multiple orders at an elected price level, then the LMM quantity is aggregated and will match N% of the incoming order quantity. Multiple LMM orders are matched on Time Priority basis until N% quantity allocation is fulfilled. However, the LMM's allocated match quantity cannot exceed their aggregated order size quantity.
• All remaining resting orders at an elected price level (LMM included) are matched according to Time Priority.
• LMM allocation will not apply until after the market opening sequence is complete, with opening matching occurring on a FIFO basis. The opening price is calculated by maximizing match quantities in relation to buy/sell pressure.

Please see the CME Globex Price Banding by Product for the list of products which use the LMM allocation algorithm.

Return to Matching Algorithms.