Feb 06, 2020
Announcement of Changes to the Order Size Cap Parameter for CME CF Real Time Indices
The Administrator announces that the Order Size Cap Parameter utilised in the calculation of the CME CF Real Time Indices (RTI) will be dynamically calculated from c. 1630 London Time on December 2nd 2019. This will replace the static caps that are currently utilised.
This change to the manner in which the Administrator calculates and implements the order size cap will further strengthen the manipulation resistance and integrity of these benchmarks.
The Order Size Cap for each individual determination of a Real Time Index will be calculated by:
- Collecting orderbooks from constituent exchanges and those that are not classified as Delayed, Erroneous or Potentially Erroneous are combined together into a consolidated orderbook
- The best ask and best bid of the consolidated orderbook are identified
- All orders within 5% of the price level of the best bid order and best ask order are identified and the sizes of these orders are taken to form a sample. Where there are less than 50 orders obtained from each side of the consolidated orderbook through this process then orders that are more than 5% from the best bid and ask will be added to the sample, starting with the lowest distance from best bid and best ask such that there are a minimum of 50 order sizes from each side.
- This sample is truncated by removing the order sizes of the top and bottom 1% when sorted by size and the arithmetic mean is determined
- The order size cap for the RTI calculation is determined as 5 winsorized standard deviations from the arithmetic mean computed in the previous step at the 1st and 99th percentiles of order sizes. Winsorizing normalises the tails of the distribution by applying the value observed at those percentiles in the calculation of standard deviation (this reduces the impact of the tail on the standard deviation calculation)
The full mathematical representation of this dynamic order size cap will be published in an updated CME CF Real Time Indices Methodology Guide upon the implementation of this change on December 2nd 2019.
This development and implementation of this change has been overseen by the CME CF Oversight Committee.