Execution Metrics – AutoEx = 5K versus AutoEx > 5K
AutoEx helps with trading blocks in a speed-driven market
What are the reasons for a “5K” print?
How can I change my AutoEx quantity?
AutoEx is one of the key ingredients to a Luminex order that makes it unique and is often described as the required “5,000-share commitment”, or the “I would” amount. While this characterization is accurate, AutoEx is much more than just a temporary placeholder and traders may undervalue it.
Here’s why. The AutoEx quantity is central to the Luminex model because it directly supports our ability to uphold two primary principles: guaranteed executions of a minimum size and the prevention of fall-downs by participants. However, matters related to workflow, and the transient nature of liquidity in the marketplace, appear to have overshadowed the benefits of AutoEx, including any incentive for raising it. We took a closer look at our execution data for the first quarter of 2017 to understand the relationship between an order’s AutoEx quantity and its final execution outcome. We found, on average, orders with AutoEx quantities greater than 5,000 shares experienced higher execution sizes compared to orders with an AutoEx quantity of 5,000 shares – 45,300 shares and 29,300 shares respectively.
Theoretically, if the subscriber community were to submit orders to Luminex with a higher AutoEx quantity – for instance 10K versus 5K – the overall number of unintended smaller sized fills – a.k.a. 5K prints – would likely decline and produce an outcome we believe would improve the overall trading experience for all subscribers.
Since inception, AutoEx has remained a very active topic of discussion with views largely mixed regarding its overall necessity and advantages. We realize the impact of the AutoEx quantity on workflows and receive many questions around its behavior on a regular basis. Therefore, we would like to take this opportunity to review our findings and the general nature of the AutoEx quantity, which show that, in some cases, raising it can prove beneficial.
Execution metrics by AutoEx quantity – 1Q 2017
Orders with AutoEx quantities greater than 5,000 shares experienced higher overall metrics relative to orders with a default AutoEx of 5,000 shares.
Top Quantity: 75% higher
Attempted Quantity: 52% higher
Execution Size: 55% higher
Auto-Ex 101 – An overview
A Luminex order is comprised of two quantities: an AutoEx quantity and a negotiable quantity. The minimum allowable AutoEx quantity – and the default – for any Luminex order is 5,000 shares, the most common AutoEx quantity submitted by users. When marketable, the AutoEx quantity is indicative of what the trader is willing to trade; it does not necessarily dictate what will trade. Similar to the traditional method of negotiating trades, AutoEx resembles an ‘I would’ instruction with respect to trading a specific quantity at a price. AutoEx expresses the portion of the order (shares) that the trader is willing to execute without needing further instruction. Having said that, what ultimately executes will depend on the size and willingness – the AutoEx – of the contra-party.
For example, an order to BUY 250,000 XYZ, with an AutoEx of 15,000, means that, if marketable, 15,000 shares would be eligible to trade without any action needed. In other words, “BUY 250,000 shares of XYZ, I would on 15,000.” Let’s say that there is also an order to SELL 100,000 XYZ, and the seller’s AutoEx quantity, or “I would” amount, equals 10,000 shares. When matched, the execution will produce a trade of at least 10,000 shares, and at most, 100,000 shares. (See below)
AutoEx helps with trading blocks in a speed-driven market
Navigating an overly fragmented market driven by speed has made sourcing block liquidity much more challenging because of the increased uncertainty around whether the trade will happen at all. Negotiable and conditional order types have evolved, and despite the common goal of sourcing block liquidity, choosing not to trade has become a permissible option. Furthermore, since the majority of other venue operators prioritize orders according to price-time, the markets’ increased focus on speed means even less of an emphasis placed on size.
The Luminex matching logic is one that enables a genuine process of size-discovery by incentivizing and rewarding participants willing to stand up and trade a larger quantity at a desired price, and when coupled with our method for calculating the execution price of negotiated trades, it supports the prevention of fall-downs and increases traders’ execution certainty.
Luminex prioritizes orders as follows: AutoEx Quantity, Top Quantity, and Time. The logic dictates that if two orders in the same symbol on the same side of the market, are resident at Luminex, the order with the higher AutoEx quantity will receive the size-up opportunity first, even if its Top Quantity (Order Size) is less than the competing order. In the example below, Order #1 would receive a size-up opportunity because the AutoEx (25,000 shares) is greater than the AutoEx for Order #2 (10,000 shares), despite its smaller total order size.
What causes a “5K” print?
Sometimes, circumstances prevent the ability to size-up and consummate trades beyond the AutoEx quantity. The majority of orders submitted to Luminex have an AutoEx quantity of 5,000 shares – the default minimum – so in cases where sizing-up is not possible, a “5K print” is often the result. Nevertheless, a 5K print, or any execution that involves one or both parties’ default AutoEx quantity, can occur for different reasons.
Reason #1 — No Action
The most common reason users receive a 5K print is from users who unintentionally respond with “no action.” While traders have the right to exercise their option to click the “Minimum” button (MIN) on the negotiation window, or simply send an order totaling 5,000 shares, both instances are rare and make up a relatively small percentage of orders and executions. Nevertheless, all three circumstances, although different in nature and intent, produce the same result: a 5,000-share trade.
Understandably, traders become frustrated when legitimate attempts to trade in larger size prove unsuccessful, and at one time or another, most traders have experienced both sides of the coin. The trading style and workflow for any trader are unique – borderline personal – so it is during times like these, when like-minded traders don’t quite match up, that instituting a higher AutoEx quantity may have been helpful. Here is an example:
- Trader A and Trader B submit an order to Luminex. Trader A sets his AutoEx to 5,000 shares and Trader B sets her AutoEx to 10,000 shares
- Trader A and Trader B receive a 20-second pop-up window prompting them to size-up. The AutoEx quantity for each order is “held for execution” until both participants submit their final desired size
- Trader A submits 75,000 shares within 10 seconds
- Trader B does not respond to the size-up window and the 20-second size-up opportunity times out. As a result, Trader B “submits” 10,000 shares – her designated AutoEx quantity
- The final trade is one execution of 10,000 shares. Had Trader A been the party to respond with no action, the final trade would have amounted to 5,000 shares, the AutoEx quantity for Trader A
Reason #2 — The execution price would violate a participant’s limit price
In the event the execution price of a negotiated trade would violate a participant’s limit price, the amount traded will be the lowest AutoEx quantity between participants, and at a price equaling the restricting limit, regardless of whether both participants size-up to quantities greater than their designated AutoEx amount.
- For example, let’s say the NBBO is: BID $10 x ASK $12.
- An order to BUY 100,000 XYZ @ $11 (5,000 share AutoEx) matches with an order to SELL 250,000 XYZ @ MKT (10,000 shares AutoEx)
- Both the buyer and seller attempt to size-up to 100,000 shares, but during that time, the quote changes making that weighted average execution price equal to $11.01, a price that would violate the buyer’s limit.
- What happens? 5,000 shares trades at a price of $11
Reason #3 — Short sales on stocks where Exchange Act Rule 201 is in effect
Whenever an Exchange Act Rule 201 “circuit breaker” is in effect, any order to sell short a relevant security will be limited to trading the AutoEx quantity, regardless of whether both participants size-up to quantities greater than their designated AutoEx amount. For instance, in the example above, even if both counterparties attempted to submit 100,000 shares (assuming the sell order was a short), the maximum allowable quantity for trading would be limited to 5,000 shares only, the AutoEx for Order #1.
How can I change my AutoEx quantity?
Changing the AutoEx quantity will depend on the method (sweep or direct orders via OMS/EMS ticket) used to access Luminex. The new AutoEx quantity will become the “committed” portion on the order (10,000-share placement versus 5,000 for example.) In addition, changes to the AutoEx quantity are at the firm level and apply to all traders.
For users currently accessing Luminex via Sweep (EMSX, Triton, Portware, Newport, and EZE Castle) please call the Luminex Sales Team to discuss and request adjustments to the default AutoEx quantity. Changes are performed by the Luminex Support Team and applicable to all traders at the firm level.
Direct via OMS/EMS Order Ticket
When sending an order via a traditional OMS/EMS, simply enter the desired quantity in the “AutoEx” field on the order ticket to a quantity between 5,000 shares and the order’s total size (Top Quantity).
Since inception, the AutoEx feature has garnered a lot of attention – both favorable and unfavorable. The concept of the AutoEx feature was a relatively new process for many of us, so conversations primarily centered more on workflow and functionality. However, as integrations evolved and matured, we noticed that some the most important philosophies baked into the AutoEx feature had somehow taken a back seat.
The incentives and potential benefits for raising one’s AutoEx are real, and we realize trading in any venue brings unique challenges, and requires changes in workflow, so we wanted to take this opportunity to bring back to the forefront the value of a seemingly benign feature, and show how it can help improve the collective trading experience.
As always, if you have any questions, please let us know.