## TDOL/TIRS1 METHODOLOGY

##### Calculation of VWAP Bid and VWAP Offer

The calculation of the TDOL/TIRS1 mid is based on the first 50K DV01 of orders at the best levels available. In this methodology, DV01 is approximated from 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.

**USD SCREEEN 50K DV01 SIZES**

Instrument |
Spreadover |

2y | 200 million |

3y | 150 million |

4y | 100 million |

5y | 100 million |

6y | 100 million |

7y | 75 million |

8y | 75 million |

9y | 75 million |

10y | 50 million |

11y | 50 million |

12y | 50 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 there is insufficient size at the best bid (offer) level, size is taken from the next bid (offer) level, and so on, until the above size has been reached. The size-weighted average is then calculated and rounded to 6 decimal places (basis points). If there is insufficient size to create a VWAP bid (offer) of the required DV01 size, the bid (offer) is considered 'missing'.

This process produces a VWAP bid offer pair that is the input to the mid calculation method described below:

**VWAP EXAMPLE**

7y Spread Over Order book (7y 50k DV01 = 75m)

BID |
OFFER |

50m / 20 | 100m / 20.25 |

50m / 19.75 | - |

The bid side of the order book above only has 16.6 K DV01 at the best price of 20 so the VWAP calculation would be (50*20+25*19.75) / (50+25) = 19.916667 after rounding to 6 decimal places.

**SPREAD OVER MID CALCULATION METHOD**

The underlying principal is that the TDOL/TIRS1 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.

- Calculations are based on live Trad-X order book depth and trade information, and the previous mid level only.
- The arithmetical mid of the VWAP bid and offer is calculated first.
- If this produces a non ¼ point level, the ¼ increment closest to the last mid is chosen.
- If there is only a one-sided market, the arithmetical mid is calculated as bid +1/8bp or offer-1/8bp, rounded to the ¼ increment closest to the last mid.
- If both the VWAP bid and offer are missing, the mid stays unchanged.
- Outside of Trad-X hours, the mids will be updated manually by voice broking desks (i.e. Asia and London).
- If the platform is unavailable during Trad-X hours, the page will not update and "indicative only" will be displayed until the platform is re-established and the book is repopulated.

**RULES BASED CALCULATION
EXPLANATION**

**Constraints:**

- B is the VWAP bid.
- A is the VWAP ask/offer.
- T is last trade. M is last-calculated mid sent to TDOL/TIRS1.
- T and M are always in 0.25 increments, but in general B and A are not.
- 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:

- Changes to A and/or B (Price change event).
- 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:**

- If neither of A or B is missing, then the arithmetic mid is X = (B + A) / 2.
- If X is not a 0.25 increment then new M = the rounded value closest to last M
- If X is a 0.25 increment, new M = X.
- Where either B or A is missing, X = B+0.125 (A missing) or A-0.125 (B missing), new M = the rounded value of X closest to last M.
- Where B and A are both missing, mid is the last M.

**After a Trade Event:**

- M is set to the trade level T.

**EXAMPLE MARKET EVOLUTION**

Step |
Event |
Bid |
Ask |
Mid |
Rule Applied |

1 | Initial State | 20 | 20.5 | 20.25 | - |

2 | Offer Changes | 20 | 20.25 | 20.25 | Price event 2 |

3 | Offer Changes | 20 | 20.75 | 20.25 | Price event 2 |

4 | Offer Changes | 20 | 20.25 | 20.25 | Price event 2 |

5 | Offer Changes | 20 | 21 | 20.5 | Price event 3 |

6 | Offer Changes | 20 | 20.75 | 20.5 | Price event 2 |

7 | Bid Changes | 20.25 | 20.75 | 20.5 | Price event 3 |

8 | Offer Changes | 20.25 | 20.5 | 20.5 | Price event 2 |

9 | Trade at 20.25 | - | - | 20.25 | Trade event 1 |

10 | Bid at 20.25 | 20.25 | - | 20.25 | Price event 4 |

11 | Offer at 20.5 | 20.25 | 20.5 | 20.25 | Price event 2 |

12 | Bid pulled | - | 20.5 | 20.25 | Price event 4 |

13 | Offer pulled | - | - | 20.25 | Price event 5 |

14 | New bid | 19.75 | - | 20 | Price event 4 |