TTST1/TREU METHODOLOGY

EURO METHODOLOGY
Calculation of Bid and VWAP 

 

The calculation of TTST1/TREU mid is based on the first 50K DV01 of orders at the best levels available, any size below 50K is ignored in the mid calculation.  In this methodology, DV01 is approximated in the following table containing the 'sociable' sizes agreed by the founders.  This simplifies the calculations and permits easy reconstruction and replication of the calculations at a later date.

 

EUR SCREEN 50K DV01 SIZES

Instrument Outrights
2y 200 million
3y 150 million
4y 150 million
5y 100 million
6y 75 million
7y 75 million
8y 50 million
9y 50 million
10y 50 million
11y 50 million
12y 25 million
13y 25 million
14y 25 million
15y 25 million
16y 25 million
17y 25 million
18y 25 million
19y 25 million
20y 25 million
21y 25 million
22y 25 million
23y 25 million
24y 25 million
25y 25 million
26y 25 million
27y 25 million
28y 25 million
29y 25 million
30y 25 million

If the size is equal to or above the minimum size, the order is used to calculate the simple arithmetical mid between the best bid and best offer.

 

RATE MID CALCULATION METHOD

The underlying principal is that the TTST1/TREU mid price is sticky - it moves the minimum necessary to remain consistent with the following rules, and may not move at all.  A trade sets the mid to the trade level, but that mid can then change immediately depending on the post-trade bid and offer levels.

  1. Calculations are based on live Trad-X order book depth and trade information, and the previous mid level only.
  2. The arithmetical mid of the above minimum size bid and offer is calculated first.
  3. If this produces a non .1bp point level, the .1bp increment closest to the last mid is chosen.
  4. If there is a one-sided market, the arithmetical mid is calculated as bid +.005bp or offer-.005bp, rounded to the .1bp increment closest to the last mid.
  5. If the bid and offer are both missing, the mid stays unchanged.

 

RULES BASED CALCULATION EXPLANATION

Constraints:

  1. B is the above minimum bid.
  2. A is the above minimum ask/offer.
  3. T is last trade.
  4. M is the last-calculated mid sent to TTST1/TREU.
  5. T and M are always in 0.001 increments, but in general B and A are not.
  6. B is always < A i.e. no choice or reversed markets.

 

 

EVENTS AND CHANGES TO A, B, T, M:

There are 2 types of events:

  1. Changes to A and/or B (Price change event).
  2. New trade at T (Trade event).

M can only change after one of these 2 events. An overfill trade (e.g. offer in 200m takes out 100m bid) is processed as a trade event followed by a residual order event.

 

RULES

**If the constraints change the rules below may also change**

After a Price Change Event:

  1. If neither of A or B is missing, then the arithmetical mid is X = (B + A) / 2.
  2. If X is not a 0.1 increment then the new M = the rounded value closest to last M
  3. If X is a 0.1 increment, new M = X.
  4. Where either B or A is missing, X = B+0.0005 (A missing) or A-0.0005 (B missing), new M = the rounded value of X closest to last M.
  5. Where B and A are both missing, mid is the last M.

 After a Trade Event:

  1. M is set to the trade level T.

 

EXAMPLE MARKET EVOLUTION

Step Event Bid Ask Mid Rule Applied
1 Initial State 1.4510 1.4530 1.4520 -
2 Offer Changes 1.4510 1.4520 1.4520 Price event 2
3 Offer Changes 1.4510 1.4540 1.4520 Price event 2
4 Offer Changes 1.4510 1.4520 1.4520 Price event 2
5 Offer Changes 1.4510 1.4550 1.4530 Price event 3
6 Offer Changes 1.4510 1.4540 1.4530 Price event 2
7 Bid Changes 1.4520 1.4540 1.4530 Price event 3
8 Offer Changes 1.4520 1.4530 1.4530 Price event 2
9 Trade at 1.4520 - - 1.4520 Trade event 1
10 Bid at 1.4520 1.4520 - 1.4520 Price event 4
11 Offer at 1.4530 1.4520 1.4530 1.4520 Price event 2
12 Bid pulled - 1.4530 1.4520 Price event 4
13 Offer pulled - - 1.4520 Price event 5
14 New bid 1.4500 - 1.4510 Price event 4