Aggregate Risk Controls for Gross Notional Exposure Interaction with IEX Auctions

IEX Trading Alert #2017 - 059

Overview

IEX offers an optional Aggregate Risk Control ("ARC") for gross notional exposure mechanism to any IEX Member or Clearing Firm. ARC is designed to assist IEX Members and clearing firms in their risk management efforts by automatically rejecting new orders and canceling all open orders when the gross notional exposure has exceeded such Member's predetermined limit.

For firms that utilize ARC, subject to SEC filing and effectiveness, IEX will not cancel orders on the Opening or Closing Auction Book if a Member has breached its pre-determined gross notional exposure limit after the Lock-in Time for the Opening or Closing Auction and before the Opening or Closing Auction match, respectively. Such orders are considered locked into the Opening or Closing Auction and cannot be canceled by the Member or by ARC, as the cancellation of such interest could disrupt the price discovery process of the Opening or Closing Auction. Once the auction completes, any portion of such orders that remain unfilled will be automatically and immediately canceled by the System.

Open orders on the Continuous Book, Halt Auction Book, Volatility Auction Book, or IPO Auction Book will continue to be canceled and new orders automatically rejected if a Member has breached its pre-determined gross notional exposure limit at any time, as such orders are not considered locked in.

Additional Detail about ARC

IEX ARC for gross notional exposure accumulates the notional value of trading for a Member or Clearing Firm's broker correspondent and will automatically reject new orders and cancel all open orders when gross notional exposure has exceeded a predetermined limit. ARC can be configured to accumulate across MPID(s), by MPID, by FIX session, or in combination, per Clearing Firm relationship.

Gross notional exposure is calculated as the absolute sum of the notional value of all buy and sell trades (equal to executed buys plus absolute value of long sells plus absolute value of short sells). There is no netting of buys and long sales in the same symbol or across symbols. Gross notional exposure resets for each new trading day.

IEX will notify the Member or Clearing Firm once:

  • 70% of the gross notional exposure is met
  • Gross notional exposure is subsequently exceeded

Utilizing ARC

Members and Clearing Firms must contact IEX Market Operations (contact details below) to arrange to utilize ARC.

Please note that gross notional exposure limit configurations are subject to the following stipulations:

  • Limits can be increased or decreased intraday
  • If a firm and its clearing firm set limits separately, the lower limits apply
  • If ARC limits are set by a clearing firm for a correspondent firm, IEX will advise the correspondent firm of the limits

Example Interaction with IEX Auctions

For example, a Member has the following open orders on IEX: :

  • limit order with a TIF of SYS
  • LOO order
  • limit order with a TIF of DAY
  • MOC order

Such Member has breached its pre-determined gross notional exposure limit after the Lock-in Time for the Opening Auction (e.g., 9:29 a.m. ET). The following orders would be canceled immediately by ARC:

  • limit order with a TIF of SYS
  • MOC order

The following orders would remain open until the Opening Auction match, because they are on the Opening Auction Book and locked into the Opening Auction. These orders may receive an execution during the Opening Auction, but any unfilled portion of the following orders will be automatically and immediately canceled by the System after the Opening Auction:

  • LOO order
  • limit order with a TIF of DAY

More Information

Please contact IEX Market Operations or Sales with any questions:

About IEX

IEX is on a mission to build fairer markets. Founded in 2012 and headquartered in New York City, IEX introduced its first trading venue in 2013 and launched as a U.S. stock exchange in 2016. IEX is the stock exchange that believes that every investor has the right to trade on equal and fair terms, on every trade. Learn more at: iextrading.com.