Starting from 30th this month, CBOE will stop using the present Uncross Opening process on BZX. The company announced yesterday that it plans on implementing the Volume Imbalance Minimizing algorithm (VMIM) on BZX, which will replace the Midpoint Uncross Opening method.
However, the change would only come into effect after a regulatory review has been conducted.
How the VMIM algorithm works
In the technical details revealed by Cboe, the VMIM opening process will match BZX to EDGX Options, C2 Options, as well as Cboe Options. According to the announcement, these options are presently using the VMIM Opening Price forming process.
The company intends to test the new process via the BZX certification environment. The test will begin tomorrow, according to the announcement from Cboe.
There are more technical information and specifications provided for the update
The company also has set up rules for the new opening process.
According to the rules, users should choose the price that reduces the total imbalance when different prices have the same matched maximum contacts. The imbalance would be ascertained by subtracting the cumulative contracts below or at the selling price at the aggregation of contracts above or at the buying price.
When several prices are matched with equivalent maximum contracts with zero imbalance, the client should pick the closest priced volume-based tie-breaker, usually placed at the center of the opening collar.
When there are different prices from which the client wants to match the same maximum contract, with the same level of the total balance, the client should select either negative imbalance (lowest in price) or the positive imbalance (highest in price).
However, this scenario is only applicable when the imbalance is greater than zero (0).
Cboe has already set implementation strategies for the new opening process. However, the process is not going to come into effect, pending regulatory approval from the Securities and Exchange Commission (SEC). But, everything is now set in motion for testing the process
The company has reiterated its desire to empower clients with Cboe products, solutions, and technologies to meet the increasing demand in the business space. Cboe said it is affecting the change to off an improved service for clients and customers.
Clients are supposed to keep this new update in mind, as it’s going to replace the former opening process for BZX.
CBOE is one of the biggest exchange holdings in the world. It offers trading and investment solutions to different investors all over the world.