Block Auctions

SpiderRock's Block Auction mechanism removes the need for manual intermediation by inviting institutional clients and a wide array of liquidity providers (collectively "Subscribers") to transact electronically via an efficient trading network. Subscribers that initiate Block Auctions can access both the SpiderRock network of liquidity providers as well any of their existing trading counter-parties - that are SpiderRock ATS clients - in either a broad and anonymous, or narrow, and directed fashion.

Block Auction Initiator Parameters

Parameter	Description
Series or Spread	The auction initiator must elect an equity option series or spread. This can be either a listed option series, an exchange eligible listed option spread, or a valid FLEX option series or spread. Spreads can contain up to six (6) option legs and may contain an equity leg.
Order Side	The auction initiator must identify a series side (BUY or SELL) or a spread side (BUY/REG, SELL/INV). Note that the initiator can choose the spread leg package including the leg sides. As a result, if an initiator is starting an auction with their side visible, they would typically chose to start with their side as BUY/REG. However, they are not required to do so.
Limit Price	The auction initiator must choose either a static or formula based limit price that is at least mid market or better relative to either (a) exact OPRA NBBO levels or (b) SpiderRock fair price (surface price) levels that exist at the start of the auction process. This limit price can be changed by the initiator at any time during the auction and, if changed, will become effective in the next trial match.
Best Price Offset	The initiator may enter a Best Price Offset, and, if provided, will only be used in the final trial match at the completion of the allotted auction duration in a final attempt to reach and make a match. This Best Price Offset value is not shown to responders prior to the final trial match.
Side/Price Visibility	The auction initiator can elect to reveal their side and price, their side only, or neither. This choice can be changed during the auction but only in the direction of increasing visibility.
Size Condition	All Or None or Quantity Or More
Time Duration	15 Seconds, 30 Seconds, 60 Seconds, 2 Minutes, 5 Minutes This time selection sets the ultimate duration of the auction and encourages participants to negotiate price levels accordingly. All Block auctions can be executed immediately at the initiator effective limit price (whether visible or not) which may result in the auction terminating before the target auction time has elapsed.
Counter-parties	The initiator can choose which counter-parties will receive its auction notices. This is done by specifying a list of named counter-parties (either to include or exclude), electing to send notices to the entire SpiderConnect network, or by some combination of the two.
Identity Disclosure	The initiator can choose to identify themselves to some or all of their notice counter-parties. If an initiator chooses to identify themselves to a counter-party then that counter-party will be identified to the initiator if/when they respond. Similarly if an initiator does NOT identify themselves to a responder then the identity of that responder will NOT be revealed to the initiator if/when they respond. Note: In some cases initiators that identify themselves to a responder may also choose to directly pay that responder a commission should the initiator and responder trade with each other.

Block Auction Responder Parameters

Parameter	Description
AuctionNoticeID	Auction responders must respond with the specific (unique) ID from the associated auction notice that identifies the individual auction to which they are responding.
Series or Spread	(Optional) If supplied, this must be compatible with the initiator leg(s). If the response does not specify an option series or spread the response will be deemed a response to the noticed option series or option spread package. In addition, if the initiator notice is for a spread the response will be deemed to be a response with the legs oriented as they were in the auction notice. When responding to spreads it is possible for the responder to use the same order side as the initiator (eg. BUY/REG vs BUY/REG) but the opposite leg sides and limit price sign. This type of response will be accepted as valid and automatically inverted within SpiderRock ATS to align with other responses.
Order Side	Auction responders must supply a series side (BUY or SELL) or a spread side (BUY/REG, SELL/INV). If the initiator has revealed a side, the responder must submit a response on the opposite the initiator. If no side is elected by the initiator, the responder can respond on either side (or both). If the initiator subsequently reveals a side then all incompatible (same direction) responses will be immediately cancelled.
Limit Price	Auction responders must supply either a static or formula based limit price. This limit price can be changed at any time during the live auction and, if changed, will become effective in the next trial match.
Best Price Offset	Responders may enter a Best Price Offset and, if elected, this Best Price Offset will only be used to join other responders. Note: Best Price Offset will not be used If another responder updates their price, thus accepting the initiator’s Public Price. In addition, if a presumptive match occurs within SpiderRock ATS and is subject to a price improvement auction on an exchange, then any remaining Best Price Offset room will be forwarded to that exchange for consideration in the on-exchange secondary auction. If more than one responder is part of the presumptive match, then the least common remaining Best Price Offset value will be forwarded to the exchange for consideration.

Initiator and Responder Limit Types

Limit Types	Description
Static	MatchPrice = StaticPrice Maintains an unadjusted price for the life of the order. This is also known as “Package” for spreads than contain more than one leg.
Delta (2-way)	MatchPrice = Delta2WayPrice + refDelta * dUPrc + 0.5 * refGamma * dUPrc * dUPrc WHERE: dUPrc = uPrcNbboMid - URefPrice (URefType=Mid) OR dUPrc = uPrcNbboCross - URefPrice (URefType=Cross) This Limit Type is used to dynamically adjust the limit price on outright option series as well as option spreads with and without stock legs. For spreads that include a stock leg Delta (2-way), this will allow the user to adjust on a delta that is different from the stock ratio used on the package. refDelta, refGamma, uRefType, and uRefPrice can be selected by the party entering the order or they can default to SpiderRock suggested values. Note that uPrcNbboCross is interpreted as relative to the underlier direction that would be necessary to hedge the series or spread refDelta. (ie. BID for positive refDelta, and ASK for negative refDelta). In addition, the initiator and responder(s) do NOT need to agree on the refDelta, refGamma, uRefType, or uRefPrice
Delta (1-way)	MatchPrice = Delta1WayPrice OR Delta1WayPrice + refDelta * dUPrc + 0.5 * refGamma * dUPrc * dUPrc (whichever is less aggressive) where: dUPrc = uPrcNbboMid - URefPrice (URefType=Mid) OR dUPrc = uPrcNbboCross - URefPrice (URefType=Cross) This Limit Type differs from Delta (2-way) in that the adjustment is bounded by the original (starting) limit. This limit type is particularly useful for Subscribers that wish to take advantage of a dynamic limit but have a level above or below which they do not want to trade.
Neutral	MatchPrice = NeutralPrice + StockDir * 0.01 * StockShares * URefPrice This Limit Type is available as a convenience for option spreads that contain a stock leg. NeutralPrice can be interpreted as the price for the option legs of the spread by themselves. The resulting MatchPrice is static for the life of the order (it does not change as all parts are also static).
RC Premium	MatchPrice = NeutralPrice - StockDir * StrikePrice This Limit Type is available as a convenience and only for reversal/conversion strategies. The resulting MatchPrice remains static for the life of the order.

Block Auction Notices

At the start of each Block Auction an AuctionNotice message will be sent to all eligible responders and AuctionState messages are then sent at the conclusion of each auction trial match (once per second while the auction is running).

SpiderRock AuctionNotice messages typically contain a significant amount of markup detail such as OPRA and Stock NBBO levels, surface volatilities, prices, and associated greeks. This information is provided on a best effort basis and is believed to be accurate enough to allow auction responding without reference to other systems. However, Subscribers are always encouraged to use whatever information is available in order to make the most accurate decisions possible.

These AuctionNotice and AuctionState notice messages are the primary mechanism through which information about an auction is communicated to responders. These messages can be subscribed to and interacted with in a number of ways, as further described below. Very little about the Block Auction responding process is particularly latency sensitive. As a result, all of the methods below are equally competitive.

Responders may receive notices via SpiderRock MLink servers (electronic notices), via automated ICE Chat notices (chat notices), and via the SpiderRock Connect Trade app (application notices). Each individual responder notice will reflect the initiator counterparty and identity disclosure parameters regardless of delivery method.

In addition, trial match notices (AuctionState messages) will be distributed via MLink servers and via SpiderRock Connect Trade.

Finally, if an initiator changes something about their order (e.g., improves the public limit price or changes their visibility settings) then a new AuctionNotice update will be sent to all potential responders that received the original auction notice.

SpiderRock Connect Trade

SpiderRock ATS Block Auctions are fully integrated into the SpiderRock Connect Trade application. This webapp tool can be run either from within a Chrome browser or as a stand-alone Electron application on both Windows and Mac desktops. This tool allows users to set a UserActionFilter, see Block Auction notices in a pending auction queue, and respond directly to auctions.

This is the recommended way to visualize and interact with all SpiderRock Block Auctions.

MLink Subscriptions

Both AuctionNotice and AuctionState messages are available via the SpiderRock MLink/WebSocket API. To obtain access a potential responder must secure a MLink API Key, connect to an MLink/WebSocket server and make a subscription to both AuctionNotice and AuctionState messages. '

Once subscribed, relevant AuctionNotice messages will be delivered to Subscribers associated with the MLink API Key via the MLink/WebSocket API, and will contain as much information as the initiator has chosen to reveal. For example, if the initiator has chosen to reveal their identity, then their identity will be contained in the AuctionNotice message a Subscriber receives.

NoticeResponse messages can be sent through MLink/WebsSocket connections to respond directly to AuctionNotice, whether the notice is from a SpiderRock ATS auction or an on-exchange auction. Responders are expected to process the associated NoticeExecReport messages to receive confirmation of, and updates to, their notice responses. This is a simplified (relative to FIX) method of responding to auction notices, particularly for Subscribers that do not currently operate production quality live FIX infrastructure.

Alternatively, Subscribers can respond to MLink auction notices by sending a FIX NewOrderSingle or NewOrderMultileg message to a SpiderRock Order Entry Gateway and processing the resulting ExecReport messages for that order.

Responses can be indicated as 'Live' and immediately included in the auction. Alternatively, they can be marked as 'Staged' which will result in staged auction response order appearing in the order handling queue of the SpiderRock Trade app of the associated Subscriber firm users. This will allow the order to be reviewed from SpiderRock Connect Trade by a tool user and submitted as a live order or rejected/ignored, allowing a Subscriber firm to pre-filter auction notices for those of highest relevance

ICE Chat

SpiderRock ATS operates an ICE Chat Bot that is capable of automatically forwarding AuctionNotice messages to potential responders via ICE Chat. These notices are formatted as chat messages and are intended to be both human readable and machine parsable.

It is possible to directly respond (via chat) to the bot. The bot will parse responses and ask for confirmation. If confirmed, a response will become a live Block Auction response. This mechanism is described more fully in the ICE Chat Bot section.

Block Auction Mechanics

Trial Matches

Once a Block Auction starts, successive trial matches will be run at one second intervals for the allotted auction duration with one final trial match occurring prior to the expiration of the auction. While trial matches are spaced one second apart, the execution of an individual trial match processes is much faster (typically < 1ms). Both initiating and responding orders can be cancelled at any time. However, once a trial match begins, all orders are firm and cannot be cancelled until that trial match concludes.

At the start of a trial match, SpiderRock ATS initially determines a set of valid auction responses that are able to fully execute. Subscribers should note that is is possible for a valid response in an earlier trial match to no longer be valid in a later trial match (e.g., responder's firm has placed a symbol on its restricted list or a spread that would result in stock being traded short no longer has a locate available).

Following this initial determination, SpiderRock ATS will identify a relevant stock NBBO level, resolve all formula based limits (if any), and round initiator and responder limits to an appropriate potential match price level. Note that individual orders can either round exact (99/1) or round fuzzy (90/10) in the direction of making the order more conservative. This choice is established by user preference at the trading account level.

In most cases, all potential match price levels will be 2 decimal places. In the special case of a spread that contains a stock leg with a leg size not equal to 100 the initiator's limit price will be rounded (50/50) to 4 decimal places and all potential match price levels will be to 4 decimal places spaced $0.01 apart with the 3rd and 4th decimal place being the 3rd and 4th decimal place of the initiator's rounded limit price.

During the process of forming price levels some specific rules apply.

• No responder price level can be equal to or through the opposing OPRA NBBO level. For example: if NBBO is 1.12 - 1.17 for a single series and a responder attempts to SELL at 1.08, that response limit will be adjusted to 1.13 (one penny inside the NBBO BID). For a spread order, the bounding NBBO will be the NBBO level from the individual leg markets (options and stock).
• No initiator price level can be more than 0.25 through OPRA NBBO levels. For example: if NBBO is 2.54 - 2.75 for a single series and an initiator attempts to BUY at 3.10 their limit price will be adjusted to 3.00. For a spread order ,the bounding NBBO will be the NBBO level from the individual leg markets (options and stock).
• If an initiator has already advertised their limit price (either at the start of the auction or in the immediately prior trial), then all responder limit prices will be stopped at the initiator's public price level. For example: if the initiator is advertising a willingness to BUY at 3.42 and a responder sends an order to SELL with a limit of 3.40, then the responder's limit will be adjusted to 3.42 to match the initiator's already public price. However, if a presumptive match occurs at the 3.42 level, the initiator that offered through the initiator level will be deemed to have a best price of 3.40 less any best price offset for the purpose of notifying an exchange of the responders willingness to trade at a better level.
• If a responder has an active best price increment, then that increment can be activated (used) only if a better competitive response is available in the trial match. A response must be for at least 100 cn or 1/4 of the initiator's size in order to be deemed competitive.

After establishing price levels, SpiderRock ATS will form all responses into a response book. This book will be one-sided if the initiator has revealed their direction and two-sided if they have not. In addition, the response book price levels may be in either 2 or 4 decimal places (depending on the item being auctioned) but in all cases, will be spaced at least $0.01 apart.

Finally, all responder size conditions will be considered and an available size (to the initiator) at each response book price level will be determined.

If it is possible for the initiator to cross (trade with) one or more responders at one or more price levels, subject to all initiator and responder conditions, the best such price level (from the initiator's perspective) will become the presumptive match price and a presumptive match process will be started. Otherwise, the results of the presumptive match will be advertised to the initiator and all SpiderRock ATS subscribers. This notification will be via electronic message (MLink) and also via SpiderRock Connect Trade.

Presumptive Match Process

At the start of presumptive match process, a provisional responder side allocation will be determined on a size pro-rata basis and a crossing order will be forwarded to an exchange selected by SpiderRock ATS. This crossing order may include a least common residual Best Price Offset value for competitive purposes on the selected exchange. If some or all of a presumptive match is broken up on exchange, then the responder side balance (if any) will be re-allocated in a pro-rata fashion among the participating responders.

When allocating among responders, SpiderRock ATS will cap all individual responder quantities at the presumptive match quantity and apply any responder size conditions to determine an available responder quantity. If a responder has more than one order participating in a presumptive match, then the total quantity of all of the participating Subscriber firm orders will be capped at presumptive match quantity with that responder's orders reduced pro-rata to ensure that its total does not exceed the presumptive match quantity.

Responder pro-rata allocation will then be:

$Allocated \space Quantity = \frac {Match \space Quantity \times Responser \space Quantity}{SUM(Responder \space Quantities)}$

Any required rounding will be conducted to favor larger responses.

If necessary to satisfy exchange or reg NMS requirements for single option series, SpiderRock ATS will sweep away NBBO markets prior to beginning an ISO cross on a selected exchange. In addition and if possible, SpiderRock ATS will utilize QCC style auctions or other non-competitive on-exchange auction processes.

If an exchange rejects a cross attempt, then SpiderRock ATS may attempt to immediately cross on another exchange. If all exchange crossing possibilities have been exhausted, SpiderRock ATS will declare the presumptive match broken and all initiating and responding orders will be cancelled.

Fees

SpiderRock ATS will pay all exchange fees associated with the selected exchange and will arrange for all resulting executions to be delivered via CMTA to the appropriate initiator and responder accounts. Responders and/or initiators pay commissions to or receive commissions from SpiderRock ATS as per their individual initiator and responder agreements.

Disclosures and Additional Information

The information above provides a brief summary of certain technical aspects of SpiderRock ATS and is compiled for concise reference purposes only. While it encapsulates key points and provides an overview of certain content found in the SpiderRock ATS Subscriber Manual, it may not capture every detail found in the manual. For comprehensive understanding and complete context, please refer to the SpiderRock Connect Subscriber Manual.