Support Board

Questions related to margin calculations:

1. There is the initial margin requirement and the maintenance margin requirement. Do clearing firms use these two margins. So when a position is first established, an initial margin is required for the first day and then after that day, the maintenance margin. Using both only complicates things. We know that the initial margin is simply 10% higher than the maintenance.

What happens when the position is increased, in a different day? Do we then have to use a combination of the initial margin and maintenance margin.

It would seem easiest just to simply use the maintenance margin.

2. For daytrading margins, is the rule to use a daytrading margin, based upon if the trader does not carry an overnight position? Therefore, at the end of the day if they are long, then the required margin goes to the normal initial/maintenance margin? And if they do not keep the position at the end of the day, then the daytrading margin applies.

Is the daytrading margin set per user account or globally? Is it a percentage of the maintenance margin?

3. When a clearing firm raises margin requirements, do they do this globally or per user account? Do they do this, through their own systems or do they go through systems like CQG, Rithmic, TT and adjust this requirement globally?

What if we have a global setting to raise margins a certain percentage of above or below where they are set for a particular trader account. Would that be what is needed?

4. The next question, is what happens, when there is insufficient margin.

There are many questions about this.

What would be considered insufficient margin, and at what time would it be considered insufficient.

If the margin requirement is 1000USD for a particular contract and the trader has 1000 in their account, they establish a position of quantity 1, and that position begins to lose money and then their cash balance and open profit/loss, currently has a value of 990, should the position then be closed immediately?

Or would it be closed at the end of the trading day. It would seem logical that it could not wait until the end of the day because what happens if the market is moving enough, to take the account negative. And what would be considered the end of the trading day? Would that be at 5 PM US Eastern time?

Is it considered insufficient margin, when there is merely .01 below the required margin at any point in time based on current cash balance and current open profit/loss. If someone is below margin by merely .01 at any time, that would be a reason to close positions?

Or if the trader is below margin by a certain percentage at any time in the day, would then positions be closed? For example if they are below 25% of the required margin would the positions be closed? And this margin could either be day trade margin or the standard margin depending upon the duration of their position.

And what all positions be closed, or just enough to reduce positions until there is sufficient margin for the remaining positions. Of course, there is risk in this, when there are positions which depend upon each other like with spreads. We have heard about this kind of problem.

5. This brings us to another question. Does manual action when it comes to liquidating positions due to insufficient margin, or when risk limits are met, better, or should this be done automatically?

We have heard that doing this automatically simply does not make sense and has significant risks. We have heard this from a competitor of TT, that it makes no sense to be automatically closing positions. We have observed the problem with automatic liquidation. It is well-known that this is a problem.

For us providing order routing services, we prefer, to provide an easy to use monitoring system with audible and visual alerts, that someone can then look at to then manually react to when it comes to closing positions to minimize or eliminate risk.

This would be a window that shows all accounts that are under margin or have reached a daily loss, it would provide in real time, the current value of the account, the current margin requirement and how much they are below margin or how much they are below the daily loss limit.

When a daily loss limit has been met or there is insufficient margin, our order routing system currently, will not allow any new positions to be entered. The trader can only reduce positions. In other words reduce risk.

6. For a position that is held overnight, that does not cause currently the cash balance to change with the profit/loss based on the settlement price. The cash balance only changes when a position is closed. The open profit/loss will reflect that ongoing position since the date of the position origin.

We wonder how this compares with how the clearing firms generate their statements.

7. File format for end of day account balance updates. What exactly does the file contain.

On January 08, 2021 you successfully completed TestSuite iLink 2.x for the Application System SierraChart - 2218 and passed CME AutoCert+ Certification.

We also want to explain the difference between direct order routing to the CME versus what TT offers.

The direct order routing is to the CME Convenience Gateway, which is very reliable, according to our infrastructure provider, and uses the FIX protocol. Even more reliable, than the market segment gateways. This is what we are told.

We first want to just talk about latency differences.

The convenience gateway, according to the CME has an additional 100 µs a higher latency as compared to the market segment gateways. We are referring to microseconds here, not milliseconds. This is a much more simplified and reliable way to interface with the CME. And according to our infrastructure provider, almost never has a problem.

Although there is a higher latency with the convenience gateway as compared to market segment gateways, the Sierra Chart order routing is so fast and so direct, that only makes sense, it is still going to be ahead of the time to be routing through a system like the CQG Web API or TT.

So basically we have a server in the Aurora data center and we will be adding another one, and these have a direct link to the CME infrastructure. Each server has two connections. An A and B. So if one fails there is another one. The CME also has a backup server.

So there are numerous levels of redundancy. Two servers. Two connections for each server. And two servers on the CME side. We can also add another ISP as well for further redundancy.

The order routing process is Sierra Chart, which we use now, which has what we call a service client, for the CME FIX protocol using iLink. All of this is a very simple and very straightforward. Really simple and really straightforward.

The risk management controls are also very simple and very reliable and very straightforward. The only thing that is an area of concern, would be automatic liquidation and we would not offer that right away and instead just simply if there is a margin violation, then only a reduction of positions is allowed and not new positions.

And then the clearing from can take the appropriate steps. Yes auto liquidation is something that we do have and can release at some point but we do not want to do this as a first step.

So what we are eliminating by removing TT, is the entire layer of complexity TT has. Instead it is just so simple and direct to the CME, through their highly reliable convenience gateway.

For example as we understand TT uses zookeeper:
https://zookeeper.apache.org/

There is nothing like this at all on the Sierra Chart side. All software is completely developed by us, and the order routing process is Sierra Chart itself using the DTC protocol server with multiple users connected in. So this is a proven and reliable platform all fully under our direct control and with very straightforward and simple architecture.

The fact that we have had zero downtime with the Denali feed, and the order routing would be be running on the very same infrastructure as the Denali feed, is example of the reliability of the direct routing.

And all of our testing so far with CME, we have not had any connectivity issues other than issues involving sequence numbers but all of those details have been worked out and resolved and we have consistently reliable connectivity in testing.

We always opt for simple and traditional.

On March 26, 2021 you successfully completed TestSuite Audit Trail for iLink 2 for the Application System AT_Sierra - 2207 and passed CME AutoCert+ Certification.

On March 26, 2021 Application System AT_Sierra - 2207 successfully completed TestSuite Audit Trail, part one of the audit trail certification, for the functionalities listed in the Certification Interview and passed CME AutoCert+ Certification.

To initiate part two of the audit trail certification, the Trading Firm or Clearing Firm will have 7 days from going live on Globex to submit a production audit trail for review to the Market Regulation Team. The audit trail file must contain all messaging from one trading day and iLink session.

we will do our best to get a live iLink session from one of the firms and see how that goes.

In the case of a long position, when a sell market order is submitted and the quantity of all sell working orders (which includes this market order) is less than the current position quantity, then this is allowed to pass the margin check because this is reducing risk. There still is a recalculation of the required margin in this case. Although if the account is under margin, the order is allowed to go through since this reduces risk.

In the case of a short position, when a buy market order is submitted and the quantity of all buy working orders (which includes this market order) is less than the current position quantity (interpreted as an absolute value), then this is allowed to pass the margin check because this is reducing risk. There still is a recalculation of the required margin in this case. Although if the account is under margin, the order is allowed to go through since this reduces risk.

We will also explain how the exactly how position limits are calculated. And we will put out an offer, that we will give one year free Sierra Chart to the first user who can work around this position limit functionality.