CONFIDENTIAL

Oversight of Automated 

Trading Systems

ICE 

March 29, 2012 
CONFIDENTIAL 2

 Automated Trading Systems (ATS)

 ICE Exchange Controls

 ICE Messaging Policy & WVR

 Q&A

Agenda
CONFIDENTIAL 3

Automated Trading Systems

 What is an Automated Trading System (ATS)?

 Automated order submissions

 Simple spreadsheet hooked to an ISV, 

 Auto-spreader

 Sophisticated “black box” algorithms 

 Direct market access

 Benefits of ATSs

 Liquidity— Provide liquidity to other market participants

 Market Making—Taken the place of market makers on the floor

 Tighter bid/offers— More efficient markets
CONFIDENTIAL 4

Risks from Automated Trading Systems

 Operational Risk

 Order and transaction growth, high message rates

 Significant investment in technology, bandwidth, monitoring

 Performance impacts (exchange/users)

 Compliance Risk

 Purposeful or accidental market impact

 Monitoring and data analysis capacity
CONFIDENTIAL 5

Exchange Functional Controls

 Automated order entry validations

 Message throttle limits

 Max quantity limits

 Price reasonability validation

 Position validation

 Orders removed upon logout

 Manual validations and controls

 Kill All button / Log off user button / Suspend clearing accounts

 Cleared error trade policy and “No Cancellation Range”

 Interval Price Limit (IPL)
CONFIDENTIAL 6

Interval Price Limits (IPL) Functionality

 ICE’s circuit breaker protection for price spikes

 Provides a floor/ceiling price limits for within a specific 

timeframe configurable by market

 New floor/ceiling price limits recalculated each new time 

interval based on current market price

 If floor/ceiling price exceeded, market put in HOLD state

 Does not halt trading in opposite direction of HOLD

 Traders can manage resting orders & enter new orders

 Market HOLD notification sent to all users

 After HOLD ends, new Upper/Lower IPL limits 

calculated
CONFIDENTIAL 7

IPL Visual Explanation

AP

RL

RL

NCR

NCR

IPL Up

IPL Down

IPL Up IPL Up

IPL Down

IPL Up

IPL Down AP

NCR

NCR

RL

RL IPL Interval IPL Interval IPL Interval IPL Interval (partial) Hold Interval

AP

NCR

RL

NCR

RL AP

NCR

RL

NCR

RL RL

NCR AP NCR

RL

At this point an order tries to rest or trade below IPL down which triggers a Hold Down

During an IPL Interval, IPL Up and Down are fixed

KEY: AP – Market Price NCR – No Cancel Range RL – Reasonability Limit IPL – Interval Price Limit (Hi/Lo) Interval – IPL Recalculation Interval

XIPL Down

Trading Allowed
CONFIDENTIAL 8

System Monitoring & Controls

 ATS conformance testing and approval process

 Message rate threshold alerts

 System performance reports

 ATS efficiency reports

 SMARTS

 Message policy & WVR reports
CONFIDENTIAL 9

SMARTS – Real-time Market Surveillance

• Real-time and historical 

graphical representation of the 

entire market including orders, 

trades, and blocks

• Reconstruct full order book, 

synchronized playback of 

multiple markets (spread 

months)

• Customized alerts to detect 

anomalies, significant price 

movements and potential 

market abuses

• Overlay related markets to 

view correlations
CONFIDENTIAL 10

Messaging Policy Overview - WVR

 Revised and re-launched 1 year ago

 Replaced simplistic Message:Lots Traded ratio from 2008

 Established to discourage inefficient messaging

 Reward orders that add to market liquidity

 Penalize orders that are off market (noise)

 Based on market price at time of order entry

 Farther from market price ~ higher message multiplier

 Policy enforced on firms meeting minimum order 

submission thresholds

 Evaluated separately per firm per market type per month

 Minor / Major policy violation thresholds
CONFIDENTIAL 11

Weighted Volume Ratio (WVR)

 Message multiplier based 

on proximity to market 

price at the time of order 

entry

WVR =∑ [(Multiplier)*(Message Count)]

∑ Lots Traded

Price 

(ticks)

Multiplier 

(outright market)

Mulitplier 

(Spread Market)

BEST 0.0 0.0

AT 0.0 0.0

1 0.5 0.25

2 1.0 0.5

3-5 2.0 1.0

>5 3.0 2.0
CONFIDENTIAL 12

Feedback to ATSs

 WVR order analysis reports available on website

 Shows message breakdown by Market / Strip

 Violation reports emailed to firms next business day

 Shows WVR violations

 Shows message breakdown by Market / Strip

 Shows any assessed fee

Market ID Description Messages Percentage Avg 

Quantity

Better than 

Market

At the 

Market

1 Tick 

Away

2 Ticks 

Away

3-5 Ticks 

Away

> 5 Ticks 

Away

Deals Lots

860302 Sugar No. 11 Futures - NYCC - May13 5,477 13.82 % 4.82 91.91 % 5.22 % 0.22 % 0.09 % 0.40 % 2.15 % 2 2

860283 Sugar No. 11 Futures - NYCC - Mar13 4,712 11.89 % 4.68 85.72 % 11.57 % 0.34 % 0.72 % 0.81 % 0.85 % 5 5

860255 Sugar No. 11 Futures - NYCC - Oct12 3,588 9.05 % 3.73 0.03 % 0.14 % 0.20 % 80.69 % 17.64 % 1.31 % 14 21

860237 Sugar No. 11 Futures - NYCC - Jul12 2,210 5.58 % 3.44 0.18 % 0.36 % 0.50 % 94.12 % 4.57 % 0.27 % 39 391

860346 Sugar No. 11 Spr - NYCC - Oct12/Oct13 696 1.76 % 3.67 14.08 % 80.46 % 1.01 % 1.01 % 0.00 % 3.45 % 21 31

860330 Sugar No. 11 Spr - NYCC - Mar13/Jul13 135 0.34 % 3.00 30.37 % 55.56 % 10.37 % 0.74 % 2.96 % 0.00 % 1 1

860221 Sugar No. 11 Futures - NYCC - May12 83 0.21 % 3.81 0.00 % 4.82 % 2.41 % 86.75 % 6.02 % 0.00 % 13 24
CONFIDENTIAL 13

Results of Message Policy in 2011

 WVR reduced by 33% 

across all Designated 

Contracts exchange-wide

 Reduced 63% across ICE 

US Futures markets

 Reduced 53% across ICE 

OTC markets

 Reduced 19% across UK 

Futures markets

 93% reduction in major 

policy threshold violations

5

1 0

1 5

2 0

2 5

3 0

3 5

Exchange Wide WVR

All Desiganted Contracts 

Total 30 per. Mov. Avg. (Total)
CONFIDENTIAL 14

Questions?