Understanding Order Entry Parameters

Order entry parameters are the conditions attached to an order before anyone thinks about price: when the venue will accept it, how much interest one firm may show at once, what information the order must carry, and what the venue publishes about it afterward. The options exchange rules state these plainly, and the off-exchange rules state a different set for quotations and records.

When Can a User Enter or Cancel an Order or Quote?

The Cboe order and quote entry rule opens the window by class type, and it covers cancellation as well as entry.

An all-sessions class is one the exchange lists for trading during all trading sessions. Everything the rule then requires applies inside that window.

A separate clock governs cancellation after the regular session ends. After regular trading hours market close, users may cancel orders and quotes with a time-in-force of good til canceled (GTC) or good til date (GTD) that remain on the book until 5:15 p.m. Eastern Time.

On domestic holidays (observed), that same cancellation right for GTC or GTD orders and quotes runs until 11:45 a.m.

Exam Tip: Gotchas

• The entry window and the after-close cancellation window are two different clocks. Entry runs until the session's market close. Cancelling a resting GTC or GTD order runs until 5:15 p.m. Eastern Time.
• The observed-holiday cut-off is 11:45 a.m., not the regular 5:15 p.m. A scenario set on a holiday that keeps the 5:15 p.m. figure has moved the wrong number.
• The window covers cancellation as well as entry. The rule's opening sentence says users can enter orders and quotes into the system or cancel previously entered orders and quotes across the same hours.

How Many Bids and Offers May a User Enter Per Identifier and Bulk Port?

Users may transmit to the system multiple orders and quotes at a single price level or at multiple price levels. The rule then adds one restriction.

A user may enter only one bid and one offer for a series or complex strategy per executing firm identifier (EFID) per bulk port. A bulk message is a single electronic message submitted in a market-maker capacity in which the user may enter, modify, or cancel up to an exchange-specified number of bids and offers. A bulk message may not be designated GTC or GTD.

A user submits a bulk message through a bulk port. The system handles a bulk message bid or offer in the same manner as it handles an order or quote, unless the rules specify otherwise.

Exam Tip: Gotchas

• The one-bid-one-offer limit is measured per identifier per port, not per firm. A firm using two executing firm identifiers, or one identifier across two bulk ports, is not capped at a single bid and offer overall.
• The restriction is not measured by price level. A user may transmit multiple orders and quotes at a single price level or at multiple price levels, but may enter only one bid and one offer for a series or complex strategy per executing firm identifier per bulk port, so a second bid through that identifier and that port is not permitted at any price level.

What Fixes an Order's Place in the Queue?

The system timestamps an order or quote upon receipt, and that timestamp determines the time ranking of the order or quote for purposes of processing it.

Each order and quote a user submits must also contain the minimum information identified in the exchange's technical specifications. The rule sets the requirement and points to the specifications for the field list.

Separate systematization requirements govern non-electronic orders sent to the trading floor, including the specific fields a market or marketable order must carry before it is represented. Those are covered in the unit on creating, retaining and reporting required records of orders and transactions.

Exam Tip: Gotchas

• Receipt sets the ranking, not entry by the user. The timestamp attaches when the system receives the order, so transmission delay costs the order its place.
• For an order a user submits, the minimum content lives in the technical specifications. The rule states only that the order must carry whatever those specifications identify; its own field list covers only the fields entered before a non-electronic market or marketable order is represented.

What Does the Exchange Publish About Resting Interest?

For each system security, the system transmits to the Options Price Reporting Authority (OPRA) for display the aggregate size of all orders and quotes in the system eligible for display at the best price to buy and at the best price to sell.

Exam Tip: Gotchas

• What goes to OPRA is aggregate size at the best price on each side. It is not the full depth of the book, and it is not one participant's individual size.
• Only display-eligible interest counts toward that aggregate. An order the system holds but is not eligible to display does not add to the published size.

What Parameters Apply Away From an Options Exchange?

Two off-exchange rules set parameters of their own.

• Quotation type in the ADF. An ADF trading center must submit automated quotations to the alternative display facility (ADF) for posting, and manual quotations shall not be submitted to it.

• Certification is one precondition. Certifying compliance to FINRA, based on reasonable forecasts of peak volume activity and on policies and procedures ensuring only automated quotations are submitted, is among the preconditions to becoming an ADF trading center. The lesson on minimum performance standards and system outages covers both.

• Order fields at a matching venue. An alternative trading system (ATS) must keep time-sequenced records of order information, an open list that includes sixteen specified fields, from receipt time in hours, minutes and seconds through to the identity of the parties. Those fields appear in the lesson on recordkeeping and record preservation.

Exam Tip: Gotchas

• Four of the five parts of an automated quotation must happen immediately and automatically. The quotation permits an incoming order to be marked immediate-or-cancel; it then immediately and automatically executes that order up to the displayed size, cancels the unexecuted portion without routing it elsewhere, responds to that order's sender with the action taken, and updates the displayed quotation to reflect any change to its material terms.
• The order record is a recordkeeping duty, not an order-entry format. The venue must capture the fields; nothing in that rule requires a customer to supply them in a particular message.

What Should You Check on Exam Day?

• Confirm which class type the scenario names, then match the entry window: 8:00 p.m. the previous day for an all-sessions class, 7:30 a.m. for a regular-hours-only class.
• On any after-close cancellation question, check whether the day is an observed domestic holiday; that moves the cut-off from 5:15 p.m. to 11:45 a.m.
• Read the one-bid-one-offer restriction to its end: it is per executing firm identifier per bulk port for a series or complex strategy.
• Confirm the timestamp attaches on the system's receipt, and that it is what sets time ranking.
• Check that a published size described as going to the reporting authority is aggregate size at the best price on each side.