Cboe to change opening process for BZX Options Exchange

Maria Nikolova

Effective January 30, 2020, Cboe is set to eliminate the current Midpoint Uncross Opening Process on BZX.

Cboe has announced its plans to change the opening process for BZX Options Exchange.

Effective January 30, 2020, Cboe will eliminate the current Midpoint Uncross Opening Process and implement a Volume Maximizing Imbalance Minimizing (VMIM) algorithm-based price forming Opening Process on BZX, with the change subject to regulatory review.

The VMIM algorithm is summarized as follows:

  • Select the price that maximizes the number of contracts matched on the open.
  • If there are multiple prices at which the same maximum contracts will be matched, select the price that minimizes the absolute imbalance, which is defined as the cumulative contracts at or above the price to buy minus the cumulative contracts at or below the price to sell.
  • If there are multiple prices at which the same maximum contracts will be matched and with the equivalent minimized absolute imbalance, and the imbalance is not zero, use the sign of the imbalance to select either the highest of the prices (positive imbalance) or the lowest of the prices (negative imbalance).
  • If there are multiple prices at which the same maximum contracts will be matched and zero imbalance, select the price closest to the Volume-Based Tie Breaker (“VBTB”), which is set to the midpoint of the opening collar.

Cboe explains that the implementation of the VMIM price forming Opening Process on BZX is set to harmonize BZX with Cboe Options (C1), C2 Options, and EDGX Options, which all currently use the VMIM price forming Opening Process.

The new Opening Process will be available for testing in the BZX certification environment effective January 6, 2020.

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